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Problem Two (20 marks) If the cost of capital is 15%, which project should be chosen?...
Problem Two
If the cost of capital is 15%, which project should be chosen? If the cost of capital is 25% which project should be chosen?
Construct the NPV profiles for Project A and Project B. (Note: plot the NPVs of both projects on the same graph.) The cost of capital ranges from 0% to 30% by increments of 2%.
|
Expected Cash Flows |
Expected Cash Flows |
|
|
Year |
Project A |
Project B |
|
0 |
-24,000 |
-11,500 |
|
1 |
-17,000 |
4,500 |
|
2 |
1,500 |
5,000 |
|
3 |
10,500 |
6,500 |
|
4 |
20,500 |
8,000 |
|
5 |
25,000 |
9,000 |
|
6 |
28,000 |
9,500 |
|
7 |
30,000 |
10,000 |
- Calculate each project’s IRR and the crossover rate of the two projects.
- Calculate each project’s MIRR at a cost of capital of 10%.
- Calculate each project’s regular payback period.
- Calculate each project’s discounted payback period with a cost of capital of 10%.
- Calculate each project’s profitability index at a cost of capital of 10%.
Please answer question using excel functions with in cell viewing.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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Columbia Gas Company (CGC) has a standard deviation...
Consider the following two projects. The cost of capital for both projects is 15%. Project Year...
Consider the following two projects. The cost of capital for
both projects is 15%.
Project
Year 0
1
2
3
4
5
Alpha
-55,000
15,000
14,000
22,000
30,000
35,000
Gamma
-80,000
40,000
30,000
25,000
25,000
20,000
Calculate the IRR for each project and determine which one is
better.
Calculate the NPV for each project and determine which one is
better.
Based on profitability index method, which project is
better?
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Question 2 Weighted Average Cost of Capital (15 marks) The capital structure of Minelli Enterprises Limited...
Question 2 Weighted Average Cost of Capital
The capital structure of Minelli Enterprises Limited as at 31
March 2020 is as follows: $’000
Ordinary shares (par value $1.50) 60,000
5.5% (post-tax) Preference Shares (par value $2.20) 8,800
6.5% (pre-tax) Bonds semi-annual (par value $1000) 80,000
Term Loan (interest rate 4.25% per annum) 6,500
Additional Information:
• The ordinary shares are currently trading at $1.95 while the
preference shares are trading at $2.45.
• Return on government bonds is 1.25%, the...
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The capital structure of Minelli Enterprises Limited as at 31
March 2020 is as follows: $’000
Ordinary shares (par value $1.50) 60,000 5.5%
(post-tax) Preference Shares (par value $2.20) 8,800 6.5%
(pre-tax) Bonds semi-annual (par value $1000) 80,000
Term Loan (interest rate 4.25% per annum) 6,500
Additional Information:
• The ordinary shares are currently trading at $1.95 while the
preference shares are trading at $2.45.
• Return on government bonds is 1.25%, the...
What is the NPV for a project whose cost of capital is 15 percent and initial...
What is the NPV for a project whose cost of capital is 15
percent and initial after-tax cost is $5,000,000 and is expected to
provide after-tax operating cash inflows of $1,800,000 in year 1,
$1,900,000 in year 2, $1,700,000 in year 3, and $1,300,000 in year
4?
Group of answer choices
a) $1 700,000
b) 371,764
c) -4,862,947
d) -137,053
What is the NPV for the following project if its cost of capital is 15 percent...
What is the NPV for the following project if its cost of capital
is 15 percent and its initial after tax cost is $5,000,000 and it
is expected to provide after-tax operating cash inflows of
$2,000,000 in year 1, $2,000,000 in year 2, $2,000,000 in year 3
and $1,410,000 in year 4?
a. 1,700,000
b. 372622
c.-137,053
d. none of the above
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$ 3,056,000
Common Stock, 1,998,000 shares
9,990,000
Paid-in Capital in Excess of Par—Preferred Stock
200,000
Paid-in Capital in Excess of Par—Common Stock
26,724,000
Retained Earnings
4,571,000
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Jan. 1
27,600 shares of preferred stock issued at $24 per...
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Using a cost of capital of 15%, calculate the net present value for the project shown...
Using a cost of capital of 15%, calculate the net present value
for the project shown in the following table and indicate whether
it is acceptable
Initial investment $-1,145
Year Cash inflows
1 $76
2 $132
3 $185
4 $256
5 $316
6 $383
7 $277
8 $98
9 $43
10 $25
The net present value (NPV) of the project is $_____
Please show all work and what inputs would be in a financial
calculator
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