Salwa is considering three competing Food and Beverage projects for investment. The projected cash flows of the three considered projects over a 6-year period are as listed in the table below. Regardless of the chosen project, she intends on financing it partially through debt and partially through equity. The debt financing share is 75% and has a cost of 12% / year. The equity share is retrieved from a bank account paying 4% / year interest. On top of its WACC, Salwa requires at least 2 percentage points of profit. Year 1 2 3 4 5 Project 1 ($) Project 2 ($) -5,000 1,500 2,500 3,500 1,000 1,000 900 -10,000 3,400 3,400 3,400 3,400 3,400 3,400 Project 3 ($) -6,500 3,800 3,200 2,300 1,600 700 200

Salwa is considering three competing Food and Beverage projects for investment. The projected cash flows of the three considered projects over a 6-year period are as listed in the table below. Regardless of the chosen project, she intends on financing it partially through debt and partially through equity. The debt financing share is 75% and has a cost of 12% / year. The equity share is retrieved from a bank account paying 4% / year interest. On top of its WACC, Salwa requires at least 2 percentage points of profit. Year 1 2 3 4 5 Project 1 ($) Project 2 ($) -5,000 1,500 2,500 3,500 1,000 1,000 900 -10,000 3,400 3,400 3,400 3,400 3,400 3,400 Project 3 ($) -6,500 3,800 3,200 2,300 1,600 700 200

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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