Giasgow company nas tne foiiowing Tinanciai data for project X (3-year project): Year Year 1 Year...

Giasgow company nas tne foiiowing Tinanciai data for project X (3-year project): Year Year 1 Year 2 Year 3 CF -10,000 5,000 4,000 4,000 The company's capital structure is distributed equally between debt, preferred stock and common stock. It has also the following information:

1- After tax cost of debt: 5.8%. Tax rate: 40% 2- Preferred stocks are selling at $65 per share and pay a dividend of $8 per share

3- Common stocks are selling at $40 per share, pay a year-end dividend of $2 per share and grow at a constant rate of 13%.

The company is also considering another two projects "Y" & "Z" with the following information:

Criterion Project Y Project Z

Payback Period 2.56 years 3 years NPV $678.98 $282.24 IRR 15.19% 16% MIRR 14.48% 15%

Note: This problem is related to questions 1 to 9

5. Assuming that the three projects X, Y & Z are independent, which project (s) should the company choose? * A. X, Y & Z B. X & Z C. Only X D. Only Y E. Reject all projects

6. Assuming that the three projects X, Y & Z are Mutual Exclusive, which project (s) should the company choose? * A. X, Y & Z B. X & Z C. Only X D. Only Y E. Reject all projects

7. Assuming that the three projects X, Y & Z are independent, then based on MIRR criteria which project (s) should the company choose? * A. X, Y & Z B. X & Y C. Only X D. Only Z E. Reject all projects

8. Assuming that the three projects X, Y & Z are Mutual Exclusive, then based on MIRR criteria which project (s) should the company choose? * A. X, Y & Z B. X & Y C. Only X D. Only Z E. Reject all projects

9. If IRR for "X" is 15.02%, and the three projects X, Y & Z are Independent, based on IRR criteria which project (s) should the company choose? * A. X, Y & Z B. X & Y C. Only X D. Only Y E. Reject all projects

Expert Solution

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jeff jeffy answered 1 year ago

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