Calculate the NPV of each project, using a cost of capital of 15%. b. Rank acceptable projects by NPV. c. At what approximate cost of capital would all of the projects be acceptable?
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
NPV, with rankings Botany Bay, Inc., a maker of casual clothing, is considering four projects. Because of past financial difficulties, the company has a high cost of capital at 15%. Which of these projects would be acceptable under those cost circumstances?
|
Project A |
Project B |
Project C |
Project D |
|
|
Initial investment (CF0) |
$50,000 |
$100,000 |
$80,000 |
$180,000 |
|
Year (t) |
|
|||
|
1 |
$20,000 |
$35,000 |
$20,000 |
$100,000 |
|
2 |
20,000 |
50,000 |
40,000 |
80,000 |
|
3 |
20,000 |
50,000 |
60,000 |
60,000 |
a. Calculate the NPV of each project, using a cost of capital of 15%.
b. Rank acceptable projects by NPV.
c. At what approximate cost of capital would all of the projects be acceptable?
d. If Project A,B, C, D are independent projects, which project(s) will you propose to be implemented?
e. If project A, B, C, D are mutually exclusive projects, which project will you proposed to be implemented?
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