Your department is evaluating two potential initiatives, both of which are expected to produce after-tax cash flows in millions of dollars. The Weighted Average Cost of Capital (WACC) for the division is 10%. 0 1 2 3 4 Project A -30 5 10 15 20 Project B -30 20 10 8 6 1. Calculate the projects’ regular paybacks, discounted paybacks, NPVs, profitability index, and IRRs. 2. If the two projects are independent, which project(s) should be chosen? 3. If the two projects are mutually exclusive and the WACC is 10%, which project(s) should be chosen? 4. If the WACC was 5%, would this change your recommendation if the projects were mutually exclusive? If the WACC was 15%, would this change your recommendation? Explain your answers. 5. Is it possible for conflicts to exist between the NPV and the IRR when independent projects are being evaluated? Explain your answer. 6. Now look at the regular and discounted paybacks. Which project looks better when judged by the paybacks?.
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
Your department is evaluating two potential initiatives, both of which are expected to produce after-tax cash flows in millions of dollars. The Weighted Average Cost of Capital (WACC) for the division is 10%.
0 1 2 3 4
Project A -30 5 10 15 20
Project B -30 20 10 8 6
1. Calculate the projects’ regular paybacks, discounted paybacks, NPVs, profitability index, and IRRs.
2. If the two projects are independent, which project(s) should be chosen?
3. If the two projects are mutually exclusive and the WACC is 10%, which project(s) should be chosen?
4. If the WACC was 5%, would this change your recommendation if the projects were mutually exclusive? If the WACC was 15%, would this change your recommendation? Explain your answers.
5. Is it possible for conflicts to exist between the NPV and the IRR when independent projects are being evaluated? Explain your answer. 6. Now look at the regular and discounted paybacks. Which project looks better when judged by the paybacks?.
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since due to Q&A guidelines, you must answer the first three sub-parts, could you please answer to questions 4, 5 and 6, please? thank you
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