40. The financial manager of a company has formulated variousfinancial plans to finance Rs. 30,00,000required to implement various capital budgeting projects. You are required to determinethe indifference point for each financial plan, assuming 55% corporate tax rate and the face value of equity shares as Rs.100 the option are (i) equity capital of Rs 30,000 00 or Rs. 1500000 10 % debentures and Rs. 15,00,000 equity . (ii) Equity capital of Rs.30,00,000 or 12% preference shares of Rs 10,00,000 and Rs.20,00,000 equity. (iii) Equity capital of Rs. 30,00,000 or 12% preference 10,00,000 Rs. 10,00,000 (10%) debentures and Rs. 10,00,000 equity and (iv) equity share capital of Rs. 20,00,000 and 10 debentures of Rs. 10,00,000 or 12 % preference capital of Rs. 10,00,000 10% debentures of Rs. 8,00,000 and Rs. 12,00,000 equity. capitalof Rs.

40. The financial manager of a company has formulated variousfinancial plans to finance Rs. 30,00,000required to implement various capital budgeting projects. You are required to determinethe indifference point for each financial plan, assuming 55% corporate tax rate and the face value of equity shares as Rs.100 the option are (i) equity capital of Rs 30,000 00 or Rs. 1500000 10 % debentures and Rs. 15,00,000 equity . (ii) Equity capital of Rs.30,00,000 or 12% preference shares of Rs 10,00,000 and Rs.20,00,000 equity. (iii) Equity capital of Rs. 30,00,000 or 12% preference 10,00,000 Rs. 10,00,000 (10%) debentures and Rs. 10,00,000 equity and (iv) equity share capital of Rs. 20,00,000 and 10 debentures of Rs. 10,00,000 or 12 % preference capital of Rs. 10,00,000 10% debentures of Rs. 8,00,000 and Rs. 12,00,000 equity. capitalof Rs.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Peter Johnson, the CFO of Homer Industries, Inc is trying to determine the Weighted Cost of Capital (WACC) based on two different capital structures under consideration to fund a new project. Assume the company’s tax rate is 30%. Component Scenario 1 Scenario 2 Cost of Capital Tax Rate Debt $5,000,000.00 $2,000,000.00 8% 30% Preferred Stock 1,200,000.00 2,200,000.00 10% Common Stock 1,800,000.00 3,800,000.00 13% Total $8,000,000.00 $8,000,000.00 i need help answering this question
7. Fiftycent Inc., has hired you to advise the firm on a capital budgeting issue involving two unequal-lived, mutually exclusive projects, S and T. The cash flows for each project are presented in the following table. Calculate the NPV and the annualized net present value (ANPV) in order to copy for each project using the firm's cost of capital of 9.0%. Which project would you recommend? (Click on the icon here the contents of the data table below into a spreadsheet.) Initial Investment Year 1 2 456 A WN 3 4 7 Project S $42,000 The NPV for project S is $ The NPV for project T is $ The ANPV for project S is $ The ANPV for project T is $ Which project would you recommend? The firm should choose project (1) - (1) OS OT $17,750 24,600 36,800 - Cash Inflows Project T $67,500 $26,400 22,600 37,000 19,700 10,900 15,350 9,780 (Round to the nearest cent.) (Round to the nearest cent.) 203 005 (Round to the nearest cent.) (Round to the nearest cent.) (Select from the drop-down menu.) bau bao otis…
You are working in the Finance Department of Ranch Manufacturing, and your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm’s present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm’s capital structure as follows: Bonds $4,000,000 Preferred stocks $2,000,000 Common Stock $6,000,000 To finance the purchase, Ranch Manufacturing will sell 10-year bonds paying interest at a rate of 7 percent per year (with interest paid semi-annually) at the market price of $1,050. Preferred stock paying a $2.00 dividend can be sold for $25. Common stock for Ranch Manufacturing is currently selling for $55 per share, and the firm paid a $3 dividend last year. Dividends are expected to continue growing at a rate of 5 percent per year for the indefinite future. If the firm’s tax rate is 30…
Rachel the chief financial officer of sunrise fruit snakcs, needed to determine the compnays projected cost of capital for next year, to do so , wshe needed to know the following infomraiont expect a) the proejcted equity level for next year b) the projected intereset rate on next years debt The projected debt level for next year D0 the projected cash balance for next year
Orange Company was contemplating two (2) capital structure choices. The CFO should choose the optimal capital structure that the company must implement; this decision should maximize the stock price. To do so, the CFO must first perform calculations using data obtained from the company: Plan Alpha 20% debt & 80% equity Wd=20%, Wc= 80% Cost of debt (rd)= 12% Tax rate= 30% bL=1.2 Risk Premium (RP)=4% Risk-free rate (rf)= 6% rs=? WACC=? Plan Omega 30% debt & 70% equity Wd=30%, Wc= 70% Cost of debt(rd)= 10% Tax rate= 30% bL=1.5 Risk Premium (RP)=5% Risk-free rate (rf)= 8% rs=? WACC=? *Hint: Compute for the rs first before computing the WACC.
ABC Enterprise would like to evaluate/analyze a potential investment.. Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the succeeding years Discount rate - 14%a. NPV for the perio 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.
EBOOK Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 20% and 50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels: Projected EPS Debt/Capital Ratio 20% 30 40 50 Projected Stock Price $3.30 $32.00 3.55 38.00 3.70 35.50 3.55 34.00 Assuming that the firm uses only debt and common equity, what is Terrell's optimal capital structure? Choose from the options provided above. Round your answers to two decimal places. % debt % equity At what debt-to-capital ratio is the company's WACC minimized? Choose from the options provided above. Round your answer to two decimal places.
Multiple choice: Assuming that a company’s project is to be funded as follows: 40% from bank loan, 30% from issuance of ordinary shares, and 30% from issuance of preference shares. Per company’s computations, the after tax cost of capital are as follows: 10%, 20% and 12% for bank loan, ordinary shares, and preference shares, respectively. If the tax rate is 30%, which cost of capital (rounded off) should the company use? • 10%• 5%• 30%• 14%
A firm has the following investment alternatives (refer to image): Each investment costs $3,000; investments B and C are mutually exclusive, and the firm’s cost of capital is 8 percent. a.) If the firm’s cost of capital had been 10 percent, what would be investment A’s internal rate of return? b.) The payback method of capital budgeting selects which investment?Why?
FIN Fund has $1,850 million dollars of assets, $250 million of liabilities, and the management team will receive $50 million in salary and administrative fees in the coming year. If FIN Fund has 250,000,000 shares outstanding what is the NAV of its shares? O A. $6.00 O B. $6.40 O C. $5.80 D. $7.40 OE. $6.20
Peter Johnson, the CFO of Homer Industries, Inc is trying to determine the Weighted Cost of Capital (WACC) based on two different capital structures under consideration to fund a new project. Assume the company’s tax rate is 30%. Component Scenario 1 Scenario 2 Cost of Capital Tax Rate Debt $5,000,000.00 $2,000,000.00 8% 30% Preferred Stock 1,200,000.00 2,200,000.00 10% Common Stock 1,800,000.00 3,800,000.00 13% Total $8,000,000.00 $8,000,000.00 1-a. Complete the table below to determine the WACC for each of the two capital structure scenarios. (Enter your answer as a whole percentage rounded to 2 decimal places (e.g. .3555 should be entered as 35.55).) Scenario 1 weight % Scenario 2 weight % Scenario1 weighted cost Scenario 2 weighted cost cost of capital tax rate Dept ? ? ? ? 8% 30% Preferred stock ? ? ? ? 10% Common stock ? ? ? ? 13% Total ? ? ? ? 1-b. Which capital structure shall Mr. Johnson choose to fund the new project?…
A firm has the following investment alternatives and has the following cash inflows.Each costs $130,000, investments C and D are mutually exclusive, and the firm’s cost of capital is 9%. Cash Flows Year A B C D 1 $45,000 $43,000 $147,000 - 2 45,000 50,000 - - 3 45,000 60,000 - $176,000 a. What is the net present value of each investment? Which investment(s) should the firm make and why?b. What is the internal rate of return on each investment? Which investment(s) should the firm make and why?c. If the firm could reinvest the $147,000 earned in year 1 from investment C at 12%, would that affect your answers?d. The payback method would select which investment? Why?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS