minimum rate of return
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Q: i. Calculate the Net Present Value (NPV) for this project. ii. Calculate the Internal Rate of…
A: Net Present Value (NPV) = Present value of cash flows - Initial investment
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Treynor Industries is investing in a new project. The minimum
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- Suppose Mullens Corporation is considering three average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,500 23.00% 2 $3,000 30.00% 3 $2,750 24.00% Mullens estimates that it can issue debt at a rate of rd=20.00%rd=20.00% and a tax rate of T=25.00%T=25.00%. It can issue preferred stock that pays a constant dividend of Dp=$20.00Dp=$20.00 per year and at Pp=$200.00Pp=$200.00 per share. Also, its common stock currently sells for P0=$16.00P0=$16.00 per share. The expected dividend payment of the common stock is D1=$4.00D1=$4.00 and the dividend is expected to grow at a constant annual rate of g=5.00%g=5.00% per year. Mullens’ target capital structure consists of ws=75.00%ws=75.00% common stock, wd=15.00%wd=15.00% debt, and wp=10.00%wp=10.00% preferred stock. 1.According to the video, the after-tax cost of debt can be stated as ________________ . Plugging in the values for rdrd and (T)T yields an after-tax cost of…Office of Business Administration tells you that Villa Apartment has a project to expand the current operations and the estimated internal rate of return is 12.2%. The Villa Apartment's WACC is 11.8%. Based on all of these, you can safely conclude the: O appropriate discount rate for the project is between 11.8% and 12.2%. O expansion should be undertaken as it has a positive net present value. O project has slightly more risk than the firm's current operations. O project will have a lower debt-equity ratio than the firm's current operations.A number of investment projects are under consideration at your company. You've calculated the cost of capital based on market values and rates, and analyzed the projects using IRR and NPV. Several projects are marginally acceptable. While watching the news last night you learned that most economists predict a rise in interest rates over the next year. Should you modify your analysis in light of this information? Why?
- LEI has the following investment opportunities that are average-risk projects for the firm: Project A B C D E Cost at t = 0 $10,000 20,000 10,000 20,000 10,000 Rate of Return 16.4% 15.0% 13.2% 12.0% 11.5% Which projects should LEI accept? Why?Consider an economy with three states which occur with probability (0.2, 0.2, 0.6). Suppose a firm has a project which generates the state dependent cash flows (100, 240, 220) at t=1. The investment costs are 170 at t=0. The firm has 170 at t=0. The market portfolio generates the payoff (200, 230, 260) and has an expected return of 10%. The risk free rate is 2%. Suppose the CAPM holds. (a) What is the beta of this project? (b) What is the net present value of the project? Explain whether the firm should conduct the project.I think the payback periods are correct, I just need the different cash flows of each year + the final question at the bottom. Thank you.
- A firm must decide between investing in two alternative risky projects, each requiring the same initial investment. Project A has an equal probability of four possible payoffs: $80m, $100m, $120m or $140m. Project B has a 50:50 chance of a payoff of $90m or $126m. Assuming that the firm’s managers are risk averse, which project would they prefer, and why?. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta’s expected future cash flows. To answer this question, Cold Goose’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$6,000,000…A firm has the following investment alternatives (refer to image): Each investment costs $3,000; investments B and C are mutually exclusive,and the firm’s cost of capital is 8 percent. a.) According to the internal rates of return, which investment(s) should the firm make? Why? b.) According to both the net present values and internal rates of return, which investments should the firm make? c.) If the firm could reinvest the $3,600 earned in year 1 from investment B at 10 percent, what effect would that information have on your answer to part b? Would the answer be different if the rate were 14 percent?
- The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc.: Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Alpha’s expected future cash flows. To answer this question, Green Caterpillar’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000…Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of return Beta, b Risk-free asset 9% 0.00 Market portfolio 14% 1.00 Project 1.74 a. Calculate the required rate of return for the project, given its level of nondiversifiable risk. b. Calculate the risk premium for the project, given its level of nondiverisifiable risk.You are considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 %, and an expected growth rate of 5% after 2003. Calculate the NPV, IRR, Payback Period. Explain how do you determining the initial cost and the terminal value? (Using Gordon Model to find the terminal)
