Given answer accounting question Pacific Electronics is evaluating a new project with risk characteristics similarto its existing operations. The company has the following financialinformation:⚫ Cost of equity = 12.5%⚫ Cost of debt = 8%⚫•Tax rate = 30%⚫ Debt-to-equity ratio = 0.6What is the appropriate discount rate (WACC) for this project?a) 9.25%b) 10.15%c) 10.85%d) 11.45%

The **Weighted Average Cost of Capital (WACC)** is calculated using the following…

Answered: Pacific Electronics is evaluating a new…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 6P

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Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome Recession Below average Average Above average E(NPV): ONPV: CV: X million 0.05 million 0.20 Boom 40 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. 0.50 0.20 NPV 0.05 ($38 million) (16 million) 12 million 20 million
Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 ($72 million) Below average 0.20 (12 million) Average 0.50 12 million Above average 0.20 18 million Boom 0.05 38 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. is there a way to do the standard deviation in excel? i am having trouble with the formula
Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 ($34 million) Below average 0.20 (16 million) Average 0.50 12 million Above average 0.20 16 million Boom 0.05 28 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. E(NPV): million σNPV: million CV:
Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 ($64 million) Below average 0.20 (10 million) Average 0.50 12 million Above average 0.20 16 million Boom 0.05 30 million Calculate the project's expected NPV, standa
A company is considering a project that has the following cash flows: C0 = -5,000, C1 = +900, C2 = +2,500, C3 = +1,100, and C4 = +2,900 with a risk-adjusted discount rate of 12%. Calculate the Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index, and the Payback of this project. If you were the manager of the firm, will you accept or reject the project based on the calculation results above?
Tomodachi Co plans to invest in either Projects M or N which are described below. The company's cost of capital is 15%, the market return is 15% and the risk-free rate is 5%. The beta for project M is 1.20 and the beta for project N is 1.40. What is the NPV for Project M when using the risk-adjusted discount rate method of project evaluation? Initial Investment Project M $700,000 Project N $780,000 Year 1 $300,000 $220,000 2 $300,000 320,000 3 $300,000 380,000 4 $300,000 460,000 or You must decide firm which of the proposed projects should be accepted for the upcoming year since only $6 million is available. Which projects should be accepted?
Oman Aluminium Company is trying to introduce an improved method of assessing investment projects using discounted cash flow techniques. For this it has to obtain a cost of capital to use as a discount rate. The finance department has assembled the following information: - The company has an equity beta of 2.10, which may be taken as the appropriate adjustment to the average risk premium. The yield on risk-free government securities is 6 per cent and the historic premium above the risk-free rate is estimated at 5.5 per cent for shares. - The market value of the firm’s equity is thrice the value of its debt. - The cost of borrowed money to the company is estimated at 9 per cent (before tax shield benefits). - Corporation tax is 35 per cent. Required: Estimate the equity cost of capital using CAPM. Calculate cost of debt after tax debt. Create an estimate of the weighted average cost of capital (WACC).
OmegaTech is considering project A. The project would require an initial investment of $52,100.00, and then have an expected cash flow of $77,900.00 in 4 years. Project A has an internal rate of return of 9.31 percent. The weighted-average cost of capital for OmegaTech is 6.99 percent. The risk of the project is similar to the average risk of the company. Which one of the following assertions is true? The NPV that Omega Tech would compute for project A is less than or equal to -$11.16. The NPV that Omega Tech would compute for project A can not be computed from the information provided The NPV that Omega Tech would compute for project A is equal to greater than $0.00. The NPV that OmegaTech would compute for project A is greater than -$11.16 but less than $0.00.
OmegaTech is considering project A. The project would require an initial investment of $58,500.00, and then have an expected cash flow of $72,800.00 in 4 years. Project A has an internal rate of return of 9.57 percent. The weighted-average cost of capital for OmegaTech is 6.69 percent. The risk of the project is similar to the average risk of the company. Which one of the following assertions is true? The NPV that Omega Tech would compute for project A is less than or equal to -$11.24. The NPV that Omega Tech would compute for project A is greater than -$11.24 but less than $0.00. The NPV that Omega Tech would compute for project A can not be computed from the information provided The NPV that Omega Tech would compute for project A is equal to greater than $0.00.
Consider the case of another company. Kim Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVS of $200,000. Management conducted a full risk analysis of these two projects, and the results are shown below. Risk Measure Standard deviation of project's expected NPVS Project beta Correlation coefficient of project cash flows (relative to the firm's existing projects) Which of the following statements about these projects' risk is correct? Check all that apply. Project B has more stand-alone risk than Project A. Project A has more corporate risk than Project B. Project A $80,000 1.2 0.7 Project B has more corporate risk than Project A. Project A has more market risk than Project B. Project B $40,000 1.0 0.9
A firm is considering two investment projects, Y and Z. These projects are NOT mutually exclusive. Assume the firm is not capital constrained. The initial costs and cashflows for these projects are: 0 1 2 3 Y -40,000 17,000 17,000 15,000 Z -28,000 12,000 12,000 20,000 Using a discount rate of 9% calculate the net present value for each project. What decision would you make based on your calculations? How would your decision change if the discount rate used for calculating the net present value is 15%? Calculate an approximate IRR for each project. Assume the hurdle rate is 9%. What decision would you make based on your calculations? Calculate the payback period for each project. The company looks to select investment projects paying back in 2 years. What decision would you make based on your calculations? Critically discuss Net Present Value (NPV), Internal Rate of Return (IRR) and payback period as criteria for investment appraisal.

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