**Each of the following factors affects the weighted average cost of capital (WACC) equation. Which of the following factors are outside a firm's control? Check all that apply.**- [ ] Tax rate- [ ] The inflation rate- [ ] The firm’s capital budgeting decision rules**The impact of a firm’s cost of capital on managerial decisions**Consider the following case:---Acme Manufacturing Corporation has two divisions, L and H. Division L is the company’s low-risk division and would have a weighted average cost of capital of 8% if it was operated as an independent company. Division H is the company’s high-risk division and would have a weighted average cost of capital of 14% if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of 11%. Division L is considering a project with an expected return of 9.5%.---Should Acme Manufacturing Corporation accept or reject the project?- [ ] Reject the project- [ ] Accept the projectOn what grounds do you base your accept-reject decision?- [ ] Division L’s project should be accepted, because its return is less than the risk-based cost of capital for the division.

Weighted average cost of capital is minimum hurdle rate and is the minimum rate of return company…

have a weighted average cost of capital of 14% if it was operated as an independent company. Becar size, the company has a composite weighted average cost of capital of 11%. Division L is considering of 9.5%. Should Acme Manufacturing Corporation accept or reject the project? O Reject the project O Accept the project On what grounds do you base your accept-reject decision?

have a weighted average cost of capital of 14% if it was operated as an independent company. Becar size, the company has a composite weighted average cost of capital of 11%. Division L is considering of 9.5%. Should Acme Manufacturing Corporation accept or reject the project? O Reject the project O Accept the project On what grounds do you base your accept-reject decision?

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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Kindly solve the last three questions: iv, v, vi only
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Isaac Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. The firm will choose only one because both forklifts perform the same function. (They are mutually exclusive investments.) The electric-powered truck will cost more but will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 18%. The life for both types of truck is estimated to be six years, during which time the net cash flows for the electric-powered truck will be $7,290 per year, and those for the gas-powered truck will be $6,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck and decide which to recommend. Compute the NPV for each truck. Compute the IRR for each truck. Compute the crossover rate. Compute the payback period for each truck. Compute the profitability index for each truck.
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Current Design Co. is considering two mutually exclusive, equally risky, and not repeatable projects, S and L. Their cash flows are shown below. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost. r: 8% Year CFS CFL $149.21 $130.31 $121.42 $101.96 $98.10 0 -$1,200 -$2,800 $700 $600 2 $600 $735 3 $150 $700 4 $110 $1,800

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