The firm has pro Target c After-tax ● ● ● The firm is consi Project A CD B E Cost of e Net inco Size € € (th) € €1 €1 1) Determin 2) Identify th 3) Identify th
The firm has pro Target c After-tax ● ● ● The firm is consi Project A CD B E Cost of e Net inco Size € € (th) € €1 €1 1) Determin 2) Identify th 3) Identify th
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Task 1:
The firm has provided the following financial data:
Cost of equity is 13.5%.
Net income is €2,500.
The firm is considering the following investment projects:
Size of project IRR of project
€1,000
12.0%
€1,200
€1,200
€1,200
€1,000
●
●
Project
A
B
C
D
E
Target capital structure is 50% debt and 50% equity.
After-tax cost of debt is 8%.
11.5%
11.0%
10.5%
10.0%
1) Determine the firm's weighted average cost of capital.
2) Identify the project(s) that the firm should accept.
3) Identify the total capital budget.
4) If the firm follows a residual dividend policy, determine its payout ratio.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5e8ab320-a83e-481a-973c-45196dab667b%2Fd7ab5f55-e697-40de-8d0d-09a57464862e%2Fw8upoi4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Task 1:
The firm has provided the following financial data:
Cost of equity is 13.5%.
Net income is €2,500.
The firm is considering the following investment projects:
Size of project IRR of project
€1,000
12.0%
€1,200
€1,200
€1,200
€1,000
●
●
Project
A
B
C
D
E
Target capital structure is 50% debt and 50% equity.
After-tax cost of debt is 8%.
11.5%
11.0%
10.5%
10.0%
1) Determine the firm's weighted average cost of capital.
2) Identify the project(s) that the firm should accept.
3) Identify the total capital budget.
4) If the firm follows a residual dividend policy, determine its payout ratio.
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