Q4) Consider the information of the K Ltd. below as on 31st March 2020 (All are in Rs. Million) Equity Market Capitalization Net Income (Book Value) (Market Value) 142.2 Debt Face-Value 10 800 1000 2000 K Ltd is planning to invest in a new project that would be completely funded by equity. Find the Weighted Average Cost of Capital of K Ltd. For the new project. Other information: Risk Free Rate Historical standard deviation of returns of K ltd Historical standard deviation of the market Covarinace between K Ltd. Return and market return 6.00% 20.00% 15.00% 0.0255 Correlation between K ltd return and market return 0.8500 Market Risk Premium Last year market return Tax Rate of KLtd 10.00% 25.60% 30.00% Cost of debt of K Ltd 9.00%

Q: Describe a process that firms often use to determine a project’srisk-adjusted costs of capital.

A: Risk-Adjusted cost of capital: It carried out to find the Net present value of a project if the…

Q: Determine the IRR of the project and the NPV of the project at a cost of capital of 12% using the…

A: Net present value and IRR are the capital budgeting techniques where NPV computes the present value…

Q: The difference between APV approach, NPV approach and Weighted Average Cost of Capital approach to…

A: Capital budgeting is a technique to evaluate the profitability or value of the project by using…

Q: The formula to calculate EVA is Net operating profit - (invested capital x weighted average cost of…

A: EVA, or economic value profit, is a measure of a corporation's economic success that is based on…

Q: What are the four types of cash flows MOST common in a capital budgeting valuation? Group of answer…

A: The four types of cash flows most common in a capital budgeting valuation are:A) Capital…

Q: What are the advantages of using the NPV method of assessing capital budgeting projects over the Pay…

A: Capital budgeting analysis is useful to know which projects are profitable and which are not. There…

Q: Under what conditions can a firm’s weighted average cost of capital be used for assessing new…

A: Weighted average cost of capital is also known as the WACC. This is the rate which must be earned by…

Q: NPV and IRR are two DCF methods for analysing a proposed capital investment. Briefly explain how…

A: The characteristics and returns, including the risk of publicly traded investments like stocks,…

Q: Which of the following should be included in the initial outlay? A. Purchase price of new equipment…

A: (Note that you have posted 10 different questions and I have answered the first one as per…

Q: Distinguish between the company cost of capital and project cost of capital?

A: Answer: Differences between project cost of capital and company’s cost of capital: Project cost of…

Q: Discuss how sunk costs, opportunity costs, side effects, financing costs, and taxes should be…

A: Sunk costs are costs that have already been incurred and thus cannot be recovered. They should be…

Q: ain why the required rate of return on a firm's assets must be equal to the weighted average cost of…

A: Weighted average cost of capital is the weighted cost of equity and weighted cost of debt after…

Q: How can the calculation of Net Income Attributable be done to a new project?

A: The question is based on the concept of Net Income Attributable for new projects.

Q: Which one of the following activities best exemplify capital structure decisions. For this exercise…

A: Capital structure is the combination of debt and equity used by a firm. A fine capital structure…

Q: onsidering short term financing for working capital requirement. What are three key factors that…

A: Short-term financing:  Short-term financing deals with raising of cash needed for a shorter periods…

Q: The incremental cash tax flow for a capital budgeting project is calculated using which of the…

A: Incremental cash flows refers to the cash flows the difference between cash flow of the organization…

Q: importance of the Technique

A: Capital budgeting refers to the process undertaken by the business for evaluating the projects or…

Q: Calculate the Payback Period of Project A (expressed in years, months and days) Calculate the…

A: Accounting rate of return (ARR) and benefit to cost ratio are calculated as shown below.

Q: Accounting Rate of Return on average investment of Project A (expressed to two decimal places

A: The Accounting rate of return is calculated by dividing average annual profits by average investment…

Q: Suppose that Linksys is considering the development of a wireless home networking appliance, called…

A: Given data: Year01234Sales ($)2358226444237448392COGS ($)95331069095993393Receivables are 14.5%…

Q: Which of the following suits the formula in computing capital ending? Select your answer. Capital…

A: The ending balance of owners' equity indicates the balance of investment till the end of the…

Q: Determine the period necessary to recover both the capital investment and the cost of funds required…

A: The payback period alludes to what extent it takes for a speculator to hit breakeven to recoup the…

Q: How can we calculate ownership (capital) cost, annual operating cost, and equivalent annual cost?

A: Ownership cost is the cost of owning a particular asset/equipment and is usually the purchase price…

Q: The comparison of the expected future streams of earnings from a project, with the immediate and…

A: Capital Budgeting: Evaluation of  investments and  huge amount of expenses in order to obtain the…

Q: Weighted average cost of capital (WACC) reflects the average cost of all capital components…

A: The Weighted Average Cost of Capital (WACC) represents a firm’s average after-tax cost of capital…

Q: When the weighted average cost of capital for a project is considered on an after tax basis, this is…

A: Answer: The correct option is (2) Marginal cost of capital

Q: escribe the advantages and disadvantages of several capital budgeting method

A: Capital budgeting refers to the process of evaluating the different high-cost opportunities in order…

Q: According to the profitability index criterion, a project is acceptable if its profitability index…

A: PI = Present value of future expected cash flows / Initial investment amount in the project.

Q: Describe the most important capital budgeting techniques and how they are used to arrive at…

A: The objective of this question is to explain the most important capital budgeting techniques and how…

Q: Which of the following best describes the process of capital budgeting? a Forecasting revenues and…

A: Capital budgeting: It is the method in which an organization tries to estimate possible significant…

Q: Determine the cost of equity to finance the plant modernization.?

A: The cost of equity is the revenue a firm needs to determine if a venture satisfies the conditions of…

Q: Critically assess, how MNEs make Investment, Capital Budgeting and Capital Structure Decisions?

A: A multinational enterprise or an MNE is an enterprise that does business in more than one country,…

Q: Explain Capital Budgeting? Mention the decision-making process of all capital budgeting techniques.

A: Capital budgeting refers to the process of making investment decisions in capital expenditure.…

Q: What do we call the cost of capital at which the two projects have the same NPV?

A: The term cost of capital refers to the cost that the company incurs in raising capital from…

Q: Explain the conditions under which a company’s WACC is appropriate to use as   the cost of capital…

A: The WACC represents the overall cost of capital. It shows the average of all the capital costs in a…

Q: The weighted average cost of capital is used to determine whether or not a project should be done.…

A: Solution:- Weighted Average Cost of Capital means the minimum return which a firm should earn in…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.