Question

Giasgow company nas tne foiiowing Tinanciai data for project X (3-year project): Year Year 1 Year 2 Year 3 CF -10,000 5,000 4,000 4,000 The company's capital structure is distributed equally between debt, preferred stock and common stock. It has also the following information: 1- After tax cost of debt: 5.8%. Tax rate: 40% 2- Preferred stocks are selling at $65 per share and pay a dividend of $8 per share 3- Common stocks are selling at $40 per share, pay a year-end dividend of $2 per share and grow at a constant rate of 13%. The company is also considering another two projects "Y" & "Z" with the following information: Project Y 2.56 years $678.98 Project Z 3 years $282.24 Criterion Payback Period NPV IRR 15.19% 16% MIRR 14.48% 15%

Note: This problem is related to questions 1 to 9

1. The NPV for project X is: A. $500.18 B. -$500.18 C. $3,000 D. -$3,000 E. None of the above

2. The MIRR for project X is: * A. 12.38% B. 13.38% C. 31.38% D. 13.83% E. None of the above

3. The payback period for project X is: * A. 2.00 years B. 2.52 years C. 2.25 years

D. -2.25 years E. None of the above

4. The discounted payback period for project X is: A. 2.25 years B. 2.28 years C. 2.28 months D. 2.82 years E. None of the above

5. Assuming that the three projects X, Y & Z are independent, which project (s) should the company choose? * A. X, Y & Z B. X & Z C. Only X D. Only Y E. Reject all projects

6. Assuming that the three projects X, Y & Z are Mutual Exclusive, which project (s) should the company choose? * A. X, Y & Z B. X & Z C. Only X D. Only Y E. Reject all projects

7. Assuming that the three projects X, Y & Z are independent, then based on MIRR criteria which project (s) should the company choose? * A. X, Y & Z B. X & Y C. Only X D. Only Z E. Reject all projects

8. Assuming that the three projects X, Y & Z are Mutual Exclusive, then based on MIRR criteria which project (s) should the company choose? * A. X, Y & Z B. X & Y C. Only X D. Only Z E. Reject all projects

9. If IRR for "X" is 15.02%, and the three projects X, Y & Z are Independent, based on IRR criteria which project (s) should the company choose? * A. X, Y & Z B. X & Y C. Only X D. Only Y E. Reject all projects

Answer #1

1.Calculation of NPV of the project X

Weight of debt(Wd)=0.33

Weight of Preferred stock(Wp)=0.33

Weight of common stock(We)=0.33

Cost of preferred stock=Dividend/Share price=$8/$65

=12.31%

Cost of Common stock=(Next year dividend/Share price)+grwoth rate

=($2/40)+0.13

=0.18 or 18.0%

WACC=Cost of Common stock*We+Cost of preferred stock*Wp+After tax cost of debt*Wd

=18.0%*0.33+12.31%*0.33+5.8%*0.33

=6.341%+4.0623%+1.914%

**=12.00%**

**NPV=Sum of Present value of all cash inflows-Initial
cash outflows**

**Present value will be calculated using WACC as
discounting rate**

**Present Value=Cash flows/(1+WACC)^no of
year**

**NPV=[**5,000/1+0.12)^1+4000/(1+.12)^2+4000/(1+.12)^3]-$10,000

=$10500.00-$10,000

=$500

**Therefore correct answer is option A**

Company B’s WACC is 10%. It has three Projects it can choose
from: Projects X, Y and Z. The following information is available
regarding Project X.
Years 0 1 2 3
Cash Flows -$100 $80 $60 $40
And the following information is available regarding Projects Y and
Z.
Criteria Project Y Project Z
NPV $40 $67
MIRR 10% 20%
IRR 6.5% 18.7%
Regular Payback 2.23 years 1.77 years
1) If IRR for Project X is 17.95%, and the three project...

11-1 If Company XYZ plans to invest in a
project with initial capital outlay $52,125, annual net cash inflow
$12,000 for 8 years, and discount rate 12%, what is the Company
XYZ’s NPA?
11-2 For the Company XYZ’s same project as in
11-1, what is the IRR for the project?
There are two projects: Project A and Project
B
Project A: CF0 = -6000;
CF1-5 = 2000; I/YR = 14.
Calculate NPV, IRR, MIRR, Payback period, and discounted payback
period...

Project S costs $16,000 and is expected to produce cash flows of
$5,000 per year for 6 years. What is the discounted payback period
for this project if the cost of capital is 21%?
A) 3.92 years
B) 5.61 years
C) 4.86 years
D) 5.85 years
What is the NPV for this project is the cost capital is 21%?
A) $157.65
B) -$110.23
C) $199.36
D) $223.08
What is the NPV for this project if the cost of capital is...

Golden Corp. is a young start-up company and therefore is not
paying any dividends on the stock over the next 6 years. However,
the following year, the company will start paying a dividend of $23
per share (at the end of the year following year 6) and thereafter
it will increase the dividends by 6% per year forever. If the
required rate of return on this stock is 16%, what is the current
(today’s) share price?
Do not use the...

The
following cash flows are given for a project
C0 = -9000 C1= +9000 C2= +18000
The NPV of the project at a discount rate of 50% is:
A.) 18,000 B.) 5,000 C.) 11,000 D.) zero or E.) none of
these
The IRR for this project is:
A.) 10% B.) 25% C.) 50% D.) 100% or E.) none of these
The payback period for this project is:
A.) zero years B.) one year C.) two years D.) three years or...

Project P costs $15,000 and is expected to produce benefits
(cash flows) of $4,500 per year for five years. Project Q costs
$37,500 and is expected to produce cash flows of $11,100 per year
for five years. Calculate each project’s (a) net present value
(NPV), (b) internal rate of return (IRR), and (c) mod- ified
internal rate of return (MIRR). The firm’s required rate of return
is 14 percent. Compute the (a) NPV, (b) IRR, (c) MIRR,
and (d) discounted payback...

All projects (A to G) are 7-year projects. NPV = Net present
value. IRR = internal rate of return. MIRR = modified internal rate
of return. PI = profitability index.
Criteria:
Project_A
Project_B
Project_C
Project_D
Project_E
Project_F
Project_G
NPV=
$137,083
$31,290
$6,016
$7,647
($584)
$12,521
$9,214
IRR=
31.80%
48.34%
12.03%
11.30%
9.94%
26.79%
37.87%
MIRR=
18.52%
23.52%
10.62%
10.59%
9.97%
23.53%
20.76%
PI=
1.69
2.25
1.040
1.038
0.999
2.25
1.92
The discounting rate...

All projects (A to G) are 7-year projects. NPV = Net present
value. IRR = internal rate of return. MIRR = modified internal rate
of return. PI = profitability index.
Criteria:
Project_A
Project_B
Project_C
Project_D
Project_E
Project_F
Project_G
NPV=
$137,083
$31,290
$6,016
$7,647
($584)
$12,521
$9,214
IRR=
31.80%
48.34%
12.03%
11.30%
9.94%
26.79%
37.87%
MIRR=
18.52%
23.52%
10.62%
10.59%
9.97%
23.53%
20.76%
PI=
1.69
2.25
1.040
1.038
0.999
2.25
1.92
The discounting rate...

Here are the expected cash flows for three projects:
Cash Flows (dollars)
Project
Year:
0
1
2
3
4
A
−
6,300
+
1,325
+
1,325
+
3,650
0
B
−
2,300
0
+
2,300
+
2,650
+
3,650
C
−
6,300
+
1,325
+
1,325
+
3,650
+
5,650
a. What is the payback period on each of the
projects?
b. If you use a cutoff period of 2 years, which
projects would you accept?
Project A
Project B...

All projects (A to G) are 7-year projects. NPV = Net present
value. IRR = internal rate of return. MIRR = modified internal rate
of return. PI = profitability index.
Criteria:
Project_A
Project_B
Project_C
Project_D
Project_E
Project_F
Project_G
NPV=
$137,083
$31,290
$6,016
$7,647
($584)
$12,521
$9,214
IRR=
31.80%
48.34%
12.03%
11.30%
9.94%
26.79%
37.87%
MIRR=
18.52%
23.52%
10.62%
10.59%
9.97%
23.53%
20.76%
PI=
1.69
2.25
1.040
1.038
1.00
2.25
1.92
The discounting rate...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 20 minutes ago

asked 21 minutes ago

asked 23 minutes ago

asked 23 minutes ago

asked 27 minutes ago

asked 28 minutes ago

asked 31 minutes ago

asked 36 minutes ago

asked 37 minutes ago

asked 38 minutes ago

asked 42 minutes ago

asked 46 minutes ago