Gander, Inc. is considering two projects with the following cash flows. Year Project X Project Y 0 ($100,000) ($100,000) 1 40,000 50,000 2 40.000 0 3 40,000 0 4 40,000 0 5 40,000 250,000 Gander uses the payback period method of capital budgeting and accepts only projects with payback periods of 3 years or less. If the projects are presented as standalone opportunities which one(s) would Gander accept? If they were mutually exclusive and Gander disregarded its three year rule, which project would be chosen? Is there a flaw in the thinking behind the correct answers to part a?
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
Payback Period: Example 10.1 (page 450)
- Gander, Inc. is considering two projects with the following cash flows.
Year Project X Project Y
0 ($100,000) ($100,000)
1 40,000 50,000
2 40.000 0
3 40,000 0
4 40,000 0
5 40,000 250,000
Gander uses the payback period method of capital budgeting and accepts only projects with payback periods of 3 years or less.
- If the projects are presented as standalone opportunities which one(s) would
Gander accept? If they were mutually exclusive and Gander disregarded its
three year rule, which project would be chosen?
- Is there a flaw in the thinking behind the correct answers to part a?
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