CrochetCo is considering an investment in a project which would require an initial outlay of $301,072 and produce expected cash flows in years 1 through 4 of $85,410 per year. You have determined that the current after-tax cost of the firm's capital (required rate of return) for each source of financing is as follows: Source of Capital Cost Long-Term Debt 4% Preferred Stock 8% Common Stock 13% Weight 45% 11% remaining What is the net present value of this project?

CrochetCo is considering an investment in a project which would require an initial outlay of $301,072 and produce expected cash flows in years 1 through 4 of $85,410 per year. You have determined that the current after-tax cost of the firm's capital (required rate of return) for each source of financing is as follows: Source of Capital Cost Long-Term Debt 4% Preferred Stock 8% Common Stock 13% Weight 45% 11% remaining What is the net present value of this project?

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

Please advise
When ∈=15% andMARR = 20% per year, determine whether the project (whose net cash-flow diagram appears next) is acceptable. Notice in this example that the use of an ∈% different from theMARR is illustrated. This might occur if, for some reason, part or all of the funds related to a project are “handled” outside the firm’s normal capital structure.
s
Farmers Alliance Limited is considering investing in new equipment with the initial cost of project/investment to be $100,000. This project is expected to generate EBIT of $15,000 per year forever (perpetuity). This project or investment can be financed either with $100,000 in equity (assume from internally generated fund) or with $40,000 of debt and $60,000 equity. The shareholders required return on an all equity financed project in this risk class is 10%. The firm's marginal tax rate is 40%. The cost of any debt is 5% before taxes. Note that in the world of Modigliani & Miller, all cash flows are perpetual and debt does not mature.Required: (iii) Use the weighted average cost of capital method to value the project. What is the value of equity? What is the value of debt?
A company is considering a long term investment that requires a $45.000 investment today, andthen in 4 years promises a payout of $55.500 with prob. 0.4 and a payout of $66.000 with prob0.6. If the opportunity cost of capital for the compay is 8%, what is the expected net presentvalue?a) 425b) 433c) 441d) 449
Corporation XYZ wants to invest in a project for which the need is 44.4 million. 7.8 million will come from a bank loan at 7.99 percent per year. 7.3 million will come from issuing bonds with a bond rate of 5.46. The rest will be financed with a stock issue that will pay dividends of 5.44 dollars per share. The average stock price is 107.09. Compute the cost of capital for this project in percentage points if the tax rate is 35%
Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 6 percent return and can be financed at 3 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 14 percent return but would cost 16 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm's capital structure. a. Compute the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Weighted average cost of capital b. Which project(s) should be accepted? O New machine. O Piece of equipment. %
Subject:- finance
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
WhiteScreen LLC is evaluating Project T, which requires an initial investment of RO 18000. The expected net cash flows are RO 5000 pa for four years at today’s prices. However, these are expected to rise by 5.5% pa because of inflation. The firm’s cost of capital is 15%. What is the NPV for Project T being evaluated by WhiteScreen LLC using the discounting real cash flows? -1802 -2803 2500 14792
You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now 0 1-10 After-Tax Cash Flow -45 12 The project's beta is 1.4. Required: a. Assuming that ry=6% and E(M) = 14%, what is the net present value of the project? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the highest possible beta estimate for the project before its NPV becomes negative? Note: Round your answer to 2 decimal places. a. Net present value b. Highest beta
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?

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