The cost of capital for 3M is 8.85% and it currently has $400 million in debt and $1,600 million in equity outstanding. Assume 3M wants to raise an additional $240 to fund a new project. Which of the following statements is most accurate? In order to maintain the current cost of capital, 3M should raise this capital by

The cost of capital for 3M is 8.85% and it currently has $400 million in debt and $1,600 million in equity outstanding. Assume 3M wants to raise an additional $240 to fund a new project. Which of the following statements is most accurate? In order to maintain the current cost of capital, 3M should raise this capital by

Name: QUESTION 12The cost of capital for 3M is 8.85% and it currently has $
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: QUESTION 12The cost of capital for 3M is 8.85% and it currently has $400 million in debt and $1,600 million in equity outstanding. Assume 3M wants to raise an additional$240 to fund a new project. Which of the following statements is most accurate?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 13EP

See similar textbooks

Similar questions

1- Consider a project of the Pearson Company. The timing and size of the incremental after-tax cash flows for an all-equity firm are $-2000, $305, $610, $555, $500 from year 0 to 4 respectively. The unlevered cost of equity is 30%. a. Calculate the NPV? Should this project be accepted? b. The firm finances the project with $20000 debt at 11% with $100 after-tax flotation costs. Principal is repaid at $3000 per year with added interest. Pearson's tax rate is 60%. The net present value of the project under leverage? Now, Should this project be accepted?
What is the payback period of a project that requires an investment of $1500 to and generates cash flows of $800 in year 1, $800 in year 2, $1000 in year 3, and $1000 in year 4? Assume a cost of capital of 7% A 3.07 years B 1.88 years C 2.93 years D 2.07 years E 1.12 yearsCompany has a capital structure of 45% equity and 55% debt It just paid out a dividend of $2.00 per share and the company has $1, 500,000 of retained earnings The dividends are expected to grow at 7.0% per year in perpetuity. Company shares are currently trading at $21.00. The Underwriter will charge issuing expenses of 8.0% on the existing share market value. The tax rate of company is 40%. What is company's cost of retained earning? A 10.19% B 17.70% C 5.71% D 17.19% E 18.08% F 16.52%
Problem 1: Fitch Industries is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects-M and N. The relevant cash flows for each project are shown in the following table. The firm's cost of capital is 14%. Project M Project N Initial investmecnt (CF) 528,500 527,000 Year (t) Cash inflows (CF) $10,000 10,000 10,000 10,000 $11,000 2. 10,000 9,000 4. 8,000 a. Calculate each project's payback period. b. Calculate the net present value (NPV) for each project. c. Calculate the internal rate of return (IRR) for each project. d. Summarize the preferences dictated by each measure you calculated and indicate which project you would recommend. Explain why.
Question 4 Mooradian Corporation estimates that its weighted average cost of capital is 17.8 percent. The company is considering two mutually exclusive projects whose after-tax cash flows are as follows: Year 0 1 2 3 4 O 42.11%; Yes O 43.11%; Yes What is the modified internal rate of return (MIRR) of the project with the highest NPV? Should this project be accepted? 44.11%; No 45.11%; Yes Project S CF ($3,172) $2,950 $2,766 $1,990 $1,931 O 45.11%; No Project L CF ($4,938) $1,552 $2,468 $4,409 $2,035
You are considering a project which requires $250,000 in external financing. The flotation cost of equity is 7% and the flotation cost of debt is 2.5%. You wish to maintain a debt-equity ratio of 0.55. What is the initial cost of the project including the flotation costs? a. $235,720 b. $263,508 c. $264,280 d. $254,752 e. $255,784
Consider a project with a net investment of $40,000 and the following net cash flows: Annual Cash Flow Year 1 $25,000 Year 2 $36,000 Year 3 $8,000 If the company's cost of capital is 5%, what would be the net present value of the project? a. $19,560 b. $19,800 c. $20,900 d. $23,373 Between equity and debt capital a. Debt is safer than equity b. No option is correct c. Both debt and equity are equally risky d. Equity is riskier than debt
aa.3 A project requires an initial investment of $500,000. This project will generate a future cash flow of $100,000/year for 8 years. The WACC of the firm is 8%. The cost of equity of this firm is 12%. The cost of debt of this firm is 6%. The risk-free rate is 3%. The floatation cost of equity is 4%. The floatation cost of debt is 2%. The target debt-to-equity ratio is 0.5. What is the NPV of this project?
EXERCISE 1: COST OF CAPITAL A company wants to raise $50 million to finance the following capital expenditure projects, with their respective rates of retum. Project A Project B Project C Project D Project E Project F 414 8% 10% 11% 12% 13% The various sources and cost of funds are as follows: In millions ofS Amounts Cost (after tax) Common shares $20 14% Retained eamings 10 10% 10 6% Mortgage Bonds Questions 1. What is the company's cost of capital?
ine capital asset pricing model to find the rcquired retim on this investment Q3: Company currently has total assets of $4 million, of which current assets comprise $0.5 million. Sales are $9 million annually, and the before-tax net profit margin (the firm currently has no interest-bearing debt) is 13 percent. Current assets levels of $0.5 million and $0.7 million are being considered instead of the $0.5 million presently held. Any additions to current assets would be financed with new equity capital. a. Determine the total asset turnover, before-tax return on investment, and before-tax net profit margin under the three alternative levels of current assets. b. If the new additions to current assets were financed with long-term debt at 14 percent interest, what would be the before-tax interest "cost" of the two new policies?
Iota Industries Market Value Balance Sheet ($ Millions) and Cost of Capital Assets Liabilities Cost of Capital Cash 250 Debt 650 Debt7% Other Assets 1200 Equity 800 Equity14% c21% Iota Industries New Project Free Cash Flows Year 0 1 2 3 Free Cash Flows($250)$75$150$100 Assume that this new project is of average risk for Iota and that the firm wants to hold constant its debt to equity ratio. The NPV for Iota's new project is closest to: Question content area bottom Part 1 A.$9.00 million. B.$11.57 million. C.$25.25 million. D.$18.50 million.
Arenas Enterprise is considering to invest in one of the three projects. The projects are as follows: Project Name Icarus Lazarus Potus Initial Investment RM1.0 million RM1.5 million RM2.5 million Expected Return (%) 14 17 12 The company is planning to finance the project through equity and debt, 40 percent and 60 percent respectively. For the first RM800,000 the after-tax cost of debt would be 9 percent and any additional funds to be raised by debt would incur 10 percent cost. The company has retained earnings of RM900,000 with a required rate of return of 15 percent. The cost of issuing new common stock is 20 percent. a) Construct the weighted marginal cost of capital
Two mutually exclusive investment opportunities require an initial investment of $8 million Investment A then generates $1.70 million per year in perpetuity, while investment B pays $1.00 million in the first y with cash flows increasing by 5% per year after that. At what cost of capital would an investor regard both opportunities as being equivalent? O A. 13% OB. 12% OC. 6% OD. 3%