You are a financial analyst for a division of General Motors. Your division is considering two investment projects to increase the use of robotics in automotive assembly, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 $5 $20 2 10 10 3 15 8 4 20 6 a. What is the regular payback period for each of these projects? b. What is the discounted payback period for each of these projects? c. If the two projects are independent and the cost of capital is 10%, using NPV and IRR which project(s) should GM undertake?
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
- You are a financial analyst for a division of General Motors. Your division is considering two investment projects to increase the use of robotics in automotive assembly, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year Project A Project B
1 $5 $20
2 10 10
3 15 8
4 20 6
a. What is the regular payback period for each of these projects?
b. What is the discounted payback period for each of these projects?
c. If the two projects are independent and the cost of capital is 10%, using
d. If the two projects are mutually exclusive and the cost of capital is 5%, using NPV which project should GM undertake?
e. If the two projects are mutually exclusive and the cost of capital is 15%, using NPV which project should GM undertake?
f. What is the crossover rate?
g. If the cost of capital and reinvestment rate is 10%, what is the modified IRR (MIRR) of the project?
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