You are a senior manager at Poeing Aircraft and have been authorized to spend up to K400,000 for projects. The three projects you are considering have the following characteristics: Project A. Initial investment of K280,000. Cashflow at year 1 will be 190,000 while in year 2, will reduce to K170,000. This is a plant expansion program and as such, the required rate of return is 10.3 percent. Project B. Initial investment of K390,000. Cashflow at year 1 will be 270,000 while in year 2, will reduce to K240,000. This is a new product development project where the required rate of return is 20.4 percent. Project C. Initial investment of K230,000. Cashflow at year 1 will be 160,000 while in year 2, will increase to K190,000. This is a market expansion project where the required rate of return is 15.7 percent. Please offer your recommendations, back your analysis with using the following methods: (i) (ii) (iii) Payback period IRR NPV
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 senior manager at Poeing Aircraft and have been authorized to spend up to
K400,000 for projects. The three projects you are considering have the following
characteristics:
Project A. Initial investment of K280,000. Cashflow at year 1 will be 190,000 while in year
2, will reduce to K170,000. This is a plant expansion program and as such, the required
rate of return is 10.3 percent.
Project B. Initial investment of K390,000. Cashflow at year 1 will be 270,000 while in year
2, will reduce to K240,000. This is a new product development project where the required
rate of return is 20.4 percent.
Project C. Initial investment of K230,000. Cashflow at year 1 will be 160,000 while in year
2, will increase to K190,000. This is a market expansion project where the required rate
of return is 15.7 percent.
Please offer your recommendations, back your analysis with using the following methods:
| (i) (ii) (iii) |
Payback period |
Step by step
Solved in 4 steps with 6 images
