(i) Calculate the Net Present Value NPV, which project should you pick? (ii) Calculate the Profitability Index PI, which project should you pick?
Question 3
(a) You are considering the following two mutually exclusive projects. Both projects have the following cash flow:
| Project A | Project A | Project B | Project B |
| Year | Cash Flow | Year | Cash Flow |
| 0 | -$87000 | 0 | -$85000 |
| 1 | $31000 | 1 | $15000 |
| 2 | $37000 | 2 | $20000 |
| 3 | $44000 | 3 | $90000 |
| Required |
12% | Required Rate of Return | 14% |
| Required Payback Period | 2.5years | Required Payback Period | 2.5years |
(i) Calculate the
(ii) Calculate the Profitability Index PI, which project should you pick?
(b) Clive Limited Company has a cost of debt of 7%, a
The firm has 104,000 shares of common stock outstanding at a market price of $20 a share.
There are 40,000 shares of preferred stock outstanding at a market price of $34 a share.
The bond issue has a total face value of $500,000 and sells at 102% of face value. The tax rate is 34%.
What is the Weighted Average Cost of Capital WACC?
Step by step
Solved in 3 steps
