(Capital rationing) The Cowboy Hat Company of Stillwater, Oklahoma, is considering seven capital investment proposals for which the total funds available are limited to a maximum of $11 million.The projects are independent and have the costs and profitability indexes associated with them shown in the popup window:a. Under strict capital rationing, which projects should be selected?b. What problems are there with capital rationing?MCKENa. Under strict capital rationing, which projects should be selected? (Select the best choice below.)OA. Projects C and FB. Projects D and GOC. Projects C and DOD. Projects D, F andOE. Projects C, D and GData table(Click on the following icon in order to copy its contents into a spreadsheet.)PROFITABILITY INDEXCOST$3,000,0001.152,000,0001.061.341.366,000,0005,000,0003,000,0006,000,0001.161.254,000,0001.12PROJECTAABCDEFGCBool1XQuestion Viewer

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(Capital rationing) The Cowboy Hat Company of Stillwater, Oklahoma, is considering seven capital investment proposals for which the total funds available are limited to a maximum of $11 million. The projects are independent and have the costs and profitability indexes associated with them shown in the popup window: a. Under strict capital rationing, which projects should be selected? b. What problems are there with capital rationing? GICEER a. Under strict capital rationing, which projects should be selected? (Select the best choice below.) OA. Projects C and F OB. Projects D and G OC. Projects C and D OD. Projects D, F and G OE. Projects C, D and G Data table (Click on the following icon in order to copy its contents into a spreadsheet.) PROFITABILITY INDEX PROJECT A COST $3,000,000 1.15 B 2,000,000 1.06 C 6,000,000 1.34 D 5,000,000 1.36 3,000,000 1.16 6,000,000 1.25 4,000,000 1.12 E F G - X Question Viewes

(Capital rationing) The Cowboy Hat Company of Stillwater, Oklahoma, is considering seven capital investment proposals for which the total funds available are limited to a maximum of $11 million. The projects are independent and have the costs and profitability indexes associated with them shown in the popup window: a. Under strict capital rationing, which projects should be selected? b. What problems are there with capital rationing? GICEER a. Under strict capital rationing, which projects should be selected? (Select the best choice below.) OA. Projects C and F OB. Projects D and G OC. Projects C and D OD. Projects D, F and G OE. Projects C, D and G Data table (Click on the following icon in order to copy its contents into a spreadsheet.) PROFITABILITY INDEX PROJECT A COST $3,000,000 1.15 B 2,000,000 1.06 C 6,000,000 1.34 D 5,000,000 1.36 3,000,000 1.16 6,000,000 1.25 4,000,000 1.12 E F G - X Question Viewes

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

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Walsh Company is considering three independent projects, each of which requires a $3 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital Project M (medium risk): Project L (low risk): Cost of capital Cost of capital = 15% = 11% = 8% IRR = 19% IRR = 12% IRR = 7% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 50% debt and 50% common equity, and it expects to have net income of $4,443,000. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
Using the Campbell Soup files given below, develop NOPAT, OCF, and FCF for the last two years. In your opinion and using these measures, is the firm healthy or not? Why or why not? [Note: you will need to use the cash flow statement to find data for fixed asset and working capital investments. For fixed asset investment, consider only the “Purchases of plant assets” in your analysis from the cash flow statement. For working capital investment, only consider Depreciation and Amortization, accounts receivable, inventory, accounts payable, accruals from the cash flow statement. Remember that each of these cash flows already represent changes in cash flow period-over-period.] Please use supporting data exhibits. Consolidated Balance Sheets July 28, 2019 July 29, 2018 Current assets Cash and cash equivalents $ 31 $ 49 Accounts receivable, net 574 563 Inventories 863 887 Other current assets 71 71…
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6 Lewis Services is evaluating six investment opportunities (projects). The following table reflects each project’s net present value NPV and the respective initial investments required. All of these projects are independent.Project NPV InvestmentI 2,500 2,500II 4,000 20,000III 7,500 30,000IV 8,000 40,000V 2,000 10,000VI 2,500 5,000Lewis has an investment constraint of P50,000. Which combination of projects would represent the optimal investment that should be recommended to Lewis Services’ management? Group of answer choices II, IV and III IV only I, IV and VI I, II, III, V, and VI I, III and IV I, II, III, IV, V, and VI I, III, and VI I, III, V, and VI
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Walsh Company is considering three independent projects, each of which requires a $5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Project M (medium risk): Cost of capital = 15% Cost of capital = 13% Project L (low risk): Cost of capital = 7% IRR = 8% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 35% debt and 65% common equity, and it expects to have net income of $11,329,500. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. % IRR = 22% IRR = 12%
A project has an initial investment of $104. You have come up with the following estimates of the project's cash flows (there are no taxes): Revenues Costs Pessimistic Most Likely $17 12 Multiple Choice Suppose the cash flows are perpetuities and the cost of capital is 10 percent. Conduct a sensitivity analysis of the project's NPV to variations in revenues. (Answers appear in order: [Pessimistic, Most Likely, Optimistic].) -$104,-$34, $76 -$34, $36, $66 -$54, $66, $66 $24 10
3. Using both Payback and NPV results, which projects, if any, would yourecommend McGloire should fund? Justify your answer and include a criticalassessment of two nonfinancial qualitative factors that could affect the investment
Why should the cost of capital used in capital budgeting be calculated as a weighted average of the capital component rather than the cost of the specific financing used to fund a particular project? Please explain using the images attached.
3. Lopez Industries has identified the following two mutually exclusive capital investment projects: Year Project A Project B 0 1 2 3 4 -16000 400 800 13000 -15500 12500 8000 800 14000 800 What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 11%, what is the NPV for each of these projects? Which project should the firm accept if they apply the NPV rule?
The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is an appropriate discount rate only for a project of average risk. Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Turnbull Co. Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%. If its current tax rate is 25%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the…

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