Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 11% 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 4 20 a. What is the regular payback period for each of the projects? Round your answers to two decimal places. Project A: years Project B: b. What is the discounted payback period for each of the projects? Do not round intermediate calculations. Round your answers to two decimal places. Project A: years years Project B: years c. Calculate the NPV of the two projects. Do not round intermediate calculations. Round your answers to the nearest cent. Project A: $ Project B: $ Calculate the IRR of the two projects. Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: If the two projects are independent and the cost of capital is 11%, which project or projects should the firm undertake? The firm should undertake -Select- % d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? The firm should undertake -Select- ✓. e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? The firm should undertake -Select- v. f. What is the crossover rate? Round your answer to two decimal places. % 8 6 g. If the cost of capital is 11%, what is the modified IRR (MIRR) of each project? Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: %
Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 11% 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 4 20 a. What is the regular payback period for each of the projects? Round your answers to two decimal places. Project A: years Project B: b. What is the discounted payback period for each of the projects? Do not round intermediate calculations. Round your answers to two decimal places. Project A: years years Project B: years c. Calculate the NPV of the two projects. Do not round intermediate calculations. Round your answers to the nearest cent. Project A: $ Project B: $ Calculate the IRR of the two projects. Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: If the two projects are independent and the cost of capital is 11%, which project or projects should the firm undertake? The firm should undertake -Select- % d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? The firm should undertake -Select- ✓. e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? The firm should undertake -Select- v. f. What is the crossover rate? Round your answer to two decimal places. % 8 6 g. If the cost of capital is 11%, what is the modified IRR (MIRR) of each project? Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: %
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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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
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Your
Transcribed Image Text:Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 11% and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year Project A Project B
5
1
20
10
15
20
a. What is the regular payback period for each of the projects? Round your answers to two decimal places.
Project A:
years
years
Project B:
b. What is the discounted payback period for each of the projects? Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
years
Project B:
years
c. Calculate the NPV of the two projects. Do not round intermediate calculations. Round your answers to the nearest cent.
Project A: $
Project B: $
Calculate the IRR of the two projects. Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
%
%
Project B:
If the two projects are independent and the cost of capital is 11%, which project or projects should the firm undertake?
The firm should undertake -Select-
d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?
The firm should undertake -Select-
2
3
4
e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?
The firm should undertake -Select-
f. What is the crossover rate? Round your answer to two decimal places.
%
108 6
%
g. If the cost of capital is 11%, what is the modified IRR (MIRR) of each project? Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
%
Project B:
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