A firm has a capital budget of $100 which must be spent on one of two projects, with any unspent balance being placed in a bank deposit earning 15%. Project A involves a present outlay of $100 and yields $321.76 after 5 years. Project B involves a present outlay of $40 and yields $92 after one year. Calculate: (i) the IRR of each project; (ii) the B/C ratio of each project, using a 15% discount rate. What are the project rankings on the basis of these investment decision rules? Suppose that if Project B is undertaken its benefit can be reinvested at 17%; what project should the firm choose? Show your calculations (spreadsheet printout is acceptable as long as entries are clearly labeled).
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
A firm has a capital budget of $100 which must be spent on one of two
projects, with any unspent balance being placed in a bank deposit
earning 15%. Project A involves a present outlay of $100 and yields $321.76
after 5 years. Project B involves a present outlay of $40 and yields $92
after one year. Calculate:
(i) the
(ii) the B/C ratio of each project, using a 15% discount rate.
What are the project rankings on the basis of these investment decision
rules? Suppose that if Project B is undertaken its benefit can be
reinvested at 17%; what project should the firm choose? Show your
calculations (spreadsheet printout is acceptable as long as entries are
clearly labeled).
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