TrvlSafe, a manufacturer of air-freightable petcrates with imbedded chips to monitor the healthof the pet, has identified two projects that haverelatively high risk; however, they are expected tomove the company into new revenue markets. Utilizea spreadsheet to determine:(a) Which of the two projects, if either, are acceptablewhen the MARR is equal to theafter-tax WACC.(b) If the same projects are acceptable, providedthe risk factors are significant and warrant anadditional return of 2% per year above the establishedMARR.Initial After-taxProject Investment, $ Cash Flow, $/Year Life, YearsWildlife (W) −250,000 48,000 10Reptiles (R) −125,000 30,000 5 Financing will be developed using a D-E mix of 60%–40% with equity funds costing 7.5% per year. Debt financing will be developed from $10,000, 5% per year, quarterly dividend, 10-year bonds. The effective tax rate is 30% per year.
TrvlSafe, a manufacturer of air-freightable pet
crates with imbedded chips to monitor the health
of the pet, has identified two projects that have
relatively high risk; however, they are expected to
move the company into new revenue markets. Utilize
a spreadsheet to determine:
(a) Which of the two projects, if either, are acceptable
when the MARR is equal to the
after-tax WACC.
(b) If the same projects are acceptable, provided
the risk factors are significant and warrant an
additional return of 2% per year above the established
MARR.
Initial After-tax
Project Investment, $ Cash Flow, $/Year Life, Years
Wildlife (W) −250,000 48,000 10
Reptiles (R) −125,000 30,000 5 Financing will be developed using a D-E mix of
60%–40% with equity funds costing 7.5% per year.
Debt financing will be developed from $10,000,
5% per year, quarterly dividend, 10-year bonds.
The effective tax rate is 30% per year.
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