Renal Industries has 3 potential projects to consider, all with an initial cost of $1,250,000. The company prefers to reject any project with a 4-year cut-off period for recapturing initial cash outflow. Given the cost of capital rates and the future cash flow for each project, determine which project the company should accept. Cash Flow Project A Project I Project U Year 1 250,000 450,000 250,000 Year 2 250,000 450,000 400,000 Year 3 250,000 450,000 600,000 Year 4 250,000 450,000 800,000 Year 5 400,000 400,000 200,000 Year 6 400,000 400,000 800,000 Year 7 400,000 400,000 600,000 Year 8 400,000 400,000 200,000 Cost of Capital 4% 6% 8% Answer the following questions showing your calculations. 1. Calculate the net present value (NPV) for each period. 2. Calculate the payback period for each period 3. Calculate the internal rate of return for each period. 4. Select the best investment for this company.
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
Renal Industries has 3 potential projects to consider, all with an initial cost of $1,250,000. The company prefers to reject any project with a 4-year cut-off period for recapturing initial
| Cash Flow |
Project A |
Project I |
Project U |
| Year 1 | 250,000 | 450,000 | 250,000 |
| Year 2 | 250,000 | 450,000 | 400,000 |
| Year 3 | 250,000 | 450,000 | 600,000 |
| Year 4 | 250,000 | 450,000 | 800,000 |
| Year 5 | 400,000 | 400,000 | 200,000 |
| Year 6 | 400,000 | 400,000 | 800,000 |
| Year 7 | 400,000 | 400,000 | 600,000 |
| Year 8 | 400,000 | 400,000 | 200,000 |
| Cost of Capital |
4% |
6% |
8% |
Answer the following questions showing your calculations.
1. Calculate the
2. Calculate the payback period for each period
3. Calculate the
4. Select the best investment for this company.
Net Present Value (NPV) is a financial metric used to measure the value of an investment or a project by calculating the present value of the expected cash inflows minus the present value of the expected cash outflows. In other words, it is the difference between the present value of the future cash inflows and the present value of the future cash outflows, discounted at a required rate of return.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
