Global Exchange has three divisions: A, B, and C. Division A has theleast risk and division C has the most risk. The firm has an aftertaxcost of debt of 6.1 percent and a cost of equity of 14.3 percent. Thefırm is financed with 35 percent debt and 65 percent equity.Division A's projects are assigned a discount rate that is 2 percentless than the firm's weighted average cost of capital. What is thediscount rate applicable to division A?O 7.98 percentO 8.27 percentO 9.43 percentO 11.48 pércentO 13.43 percent

WACC (discount rate) refers to the joint cost of company's capital from all the sources of the…

Division A's projects are assigned a discount rate that is 2 percent less than the firm's weighted average cost of capital. What is the discount rate applicable to division A? O 7.98 percent O 8.27 percent O 9.43 percent O 11.48 percent O 13.43 percent

Division A's projects are assigned a discount rate that is 2 percent less than the firm's weighted average cost of capital. What is the discount rate applicable to division A? O 7.98 percent O 8.27 percent O 9.43 percent O 11.48 percent O 13.43 percent

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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Similar questions

Cooney Co. is evaluating the following mutually exclusive projects. The manager has determined that the appropriate discount rate is 6.20% for all the recommended projects. Rank order the projects based on the net present value. Project A Project B Project C (35,000) (65,000) (86,000) Year 0 1 2 3 55,000 40,000 22,000 22,000 44,000 44,000 35,000
Project A has the following estimated cash flows and present values:Year Cash flow $ Discount factor@ 12% Present value $0 Cost (95 000) 1.0 (95 000) 1–5 Contributionper annum 50 000 3.605 180 250 1–5 Fixed costsper annum (25 000) 3.605 (90 125) 5 Residual value 20 000 0.567 11 340 The benefit of using sensitivity analysis in an investment appraisal would be:
The management of Bhytyu Limited are considering several mutually exclusive projects with characteristics as shown in the following table. Project A B C D E Initial Cost ($ millions) 87 121 91 95 118 Accounting rate of return 13% 13% 15% 22% 11% Net Present Value ($ millions) 0 11 -1 7 10 Payback Period (Years) 3 5 7 3 5 Internal Rate of Return 9.5% 13.2% 8.0% 11.7% 12.5% Management’s stated goal is to maximise the wealth of the firm’s owners, and to be accepted any investment project must have a minimum investment yield of 10%. Required: Which of the above projects, if any, should be selected by management? Explain the rationale for your choice.
Cullumber Corp. management is evaluating two independent projects. The costs and expected cash flows are given in the following table. The cost of capital is 9.75 percent. Year 0 1 2 3 4 5 A - $339,547 129,300 129,300 129,300 129,300 129,300 B - $411,808 The NPV of project A is $ The IRR of Project A is 168,190 142,830 179,500 128,800 a. Calculate the projects' NPV. (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to O decimal places, e.g. 1,525.) 119,800 and project B is $ b. Calculate the projects' IRR. (Round answer to 2 decimal places, e.g. 15.25%.) % and Project B is %.
Projects Y and Z are mutually exclusive projects. Assume the company has a WACC of 14%. Year Project Y Project Z 0 -$1,500 -$1,500 1 200 900 2 400 600 3 600 300 4 1,000 200 What is the NPV of project Y? What is the NPV of project Z? At what WACC should the company be indifferent whether to accept or reject project Z?
1. Which of the following should be included in the initial outlay? A. Purchase price of new equipmentB. Increased working capital requirementsC. Pre-existing firm overhead reallocated to the new projectD. A and B above 2. Which of the following is NOT included in the calculation of the initial outlay for a capitalbudget? A. Additional working-capital investmentsB. Training expensesC. InstallationD. All is included in the initial outlay 3. Dividend policy is influenced by: A. a firm's capital structure mix.B. a company's investment opportunities.C. a company's availability of internally generated funds.D. all of the above. 4.Which of the following dividend policies will cause dividends per share to fluctuate themost? A. Stable dollar dividendB. Constant dividend payout ratioC. Small, low, regular dividend plus a year-end extraD. No difference between the various dividend policies 5.Which of the following statements would be consistent with the bird-in-the-hand dividendtheory? A.…
Question 4 Mooradian Corporation estimates that its weighted average cost of capital is 17.8 percent. The company is considering two mutually exclusive projects whose after-tax cash flows are as follows: Year 0 1 2 3 4 O 42.11%; Yes O 43.11%; Yes What is the modified internal rate of return (MIRR) of the project with the highest NPV? Should this project be accepted? 44.11%; No 45.11%; Yes Project S CF ($3,172) $2,950 $2,766 $1,990 $1,931 O 45.11%; No Project L CF ($4,938) $1,552 $2,468 $4,409 $2,035

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