Mr Ali has an option of investing in one project from the proposed three different projects. The initial investment and cash flows are given below. (r = 12%) Years Cf – project 1 Cf – project 2 Cf – project 3 0 (10,000) (28,000) (22,000) 1 1000 3000 4000 2 880 7000 1000 3 6000 8000 1000 4 4000 12000 9000 5 2000 7500 11500 6 3650 6400 8900 Calculate profitability index for all three projects.
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
Mr Ali has an option of investing in one project from the proposed three different projects. The initial investment and cash flows are given below. (r = 12%)
Years |
Cf – project 1 |
Cf – project 2 |
Cf – project 3 |
0 |
(10,000) |
(28,000) |
(22,000) |
1 |
1000 |
3000 |
4000 |
2 |
880 |
7000 |
1000 |
3 |
6000 |
8000 |
1000 |
4 |
4000 |
12000 |
9000 |
5 |
2000 |
7500 |
11500 |
6 |
3650 |
6400 |
8900 |
- Calculate profitability index for all three projects.
- Calculate IRR for all three projects
- Write a detailed comment on which project Mr Ali must invest on the basis of above calculated criteria’s and why he must ignore the other projects
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