Q No. 1 Assume that you are given assignment to evaluate the capital budgeting projects of the company which is considering investing in two Solar Energy projects, "Jamper Solar Project" and "Sajawal Solar Project". The initial cost of each project is Rs. 10000 Million. Company discount all projects based on WACC. Further, all the projects are equally risky projects, and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for current period is Rs 7.36, its expected that the dividend will grow at the constant growth rate of 8%, and the company's common stock sells for 80. The tax rate is 50%. The cash flows of both the projects are given in table below: Jamper Solar Project Cashflows (amount in Rs. Millions) Sajawal Solar Project Cashflows (amount in Rs. Millions) Time 10,000 10,000 6,500 3,000 3,000 1,000 1 3,500 3,500 3,500 3,500 4 Carefully analyze the above table and answer the following questions in detail. I. Calculate the weighted average cost of capital for this firm? Compute each project's IRR, NPV, payback, MIRR, and discounted payback. Which project(s) should be accepted if they are mutually exclusive? Explain Which project(s) should be accepted if they are independent? Explain II. III. IV.
Q No. 1 Assume that you are given assignment to evaluate the capital budgeting projects of the company which is considering investing in two Solar Energy projects, "Jamper Solar Project" and "Sajawal Solar Project". The initial cost of each project is Rs. 10000 Million. Company discount all projects based on WACC. Further, all the projects are equally risky projects, and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for current period is Rs 7.36, its expected that the dividend will grow at the constant growth rate of 8%, and the company's common stock sells for 80. The tax rate is 50%. The cash flows of both the projects are given in table below: Jamper Solar Project Cashflows (amount in Rs. Millions) Sajawal Solar Project Cashflows (amount in Rs. Millions) Time 10,000 10,000 6,500 3,000 3,000 1,000 1 3,500 3,500 3,500 3,500 4 Carefully analyze the above table and answer the following questions in detail. I. Calculate the weighted average cost of capital for this firm? Compute each project's IRR, NPV, payback, MIRR, and discounted payback. Which project(s) should be accepted if they are mutually exclusive? Explain Which project(s) should be accepted if they are independent? Explain II. III. IV.
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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Transcribed Image Text:Q No. 1 Assume that you are given assignment to evaluate the capital budgeting projects of the company
which is considering investing in two Solar Energy projects, "Jamper Solar Project" and "Sajawal Solar
Project". The initial cost of each project is Rs. 10000 Million. Company discount all projects based on
WACC. Further, all the projects are equally risky projects, and the company uses only debt and common
equity for financing these projects. It can borrow unlimited amounts at interest rate of rd 10% as long as it
finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for
current period is Rs 7.36, its expected that the dividend will grow at the constant growth rate of 8%, and
the company's common stock sells for 80. The tax rate is 50%.
The cash flows of both the projects are given in table below:
Time
Jamper Solar Project
Cashflows (amount in Rs.
Millions)
Sajawal Solar Project Cashflows
(amount in Rs. Millions)
10,000
10,000
3,500
3,500
3,500
3,500
1.
6,500
3,000
3,000
1,000
3
4
Carefully analyze the above table and answer the following questions in detail.
I.
Calculate the weighted average cost of capital for this firm?
II.
Compute each project's IRR, NPV, payback, MIRR, and discounted payback.
Which project(s) should be accepted if they are mutually exclusive? Explain
IV.
III.
Which project(s) should be accepted if they are independent? Explain
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