Question

Silver Sun Industrial has a weighted-average cost of capital of 11.42 percent and is evaluating two...

Silver Sun Industrial has a weighted-average cost of capital of 11.42 percent and is evaluating two projects: A and B. Project A involves an initial investment of 4,842 dollars and an expected cash flow of 8,958 dollars in 4 years. Project A is considered more risky than an average-risk project at Silver Sun Industrial, such that the appropriate discount rate for it is 2.15 percentage points different than the discount rate used for an average-risk project at Silver Sun Industrial. The internal rate of return for project A is 16.63 percent. Project B involves an initial investment of 4,141 dollars and an expected cash flow of 5,880 dollars in 9 years. Project B is considered less risky than an average-risk project at Silver Sun Industrial, such that the appropriate discount rate for it is 1.72 percentage points different than the discount rate used for an average-risk project at Silver Sun Industrial. The internal rate of return for project B is 3.97 percent. What is X if X equals the NPV of project A plus the NPV of project B?

Homework Answers

Answer #1

Silver Sun's WACC = 11.42%

Because project A is more risky, the discount rate for it will be higher than Silver Sun's wacc. And because project B is less risky, the discount rate will be lower for it.

Project A's discount rate = 11.42+2.15 = 13.57%

Project B's discount rate = 11.42-1.72 = 9.70%

Project A's Npv = -4842+8958/(1.1357)^4 = 542.64

Project B's Npv= -4141+5880/(1.097)^9 = -1585.25

Thwrei, the combined npv of both projects =

-1585.25+542.64 = - 1042.61

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Silver Sun Aviation has a weighted-average cost of capital of 8.64 percent and is evaluating two...
Silver Sun Aviation has a weighted-average cost of capital of 8.64 percent and is evaluating two projects: A and B. Project A involves an initial investment of 6,389 dollars and an expected cash flow of 11,117 dollars in 6 years. Project A is considered more risky than an average-risk project at Silver Sun Aviation, such that the appropriate discount rate for it is 1.62 percentage points different than the discount rate used for an average-risk project at Silver Sun Aviation....
Platinum Water Aviation has a weighted-average cost of capital of 10.36 percent and is evaluating two...
Platinum Water Aviation has a weighted-average cost of capital of 10.36 percent and is evaluating two projects: A and B. Project A involves an initial investment of 4,886 dollars and an expected cash flow of 8,404 dollars in 4 years. Project A is considered more risky than an average-risk project at Platinum Water Aviation, such that the appropriate discount rate for it is 1.01 percentage points different than the discount rate used for an average-risk project at Platinum Water Aviation....
Indigo River Entertainment has a weighted-average cost of capital of 7.55 percent and is evaluating two...
Indigo River Entertainment has a weighted-average cost of capital of 7.55 percent and is evaluating two projects: A and B. Project A involves an initial investment of 4,477 dollars and an expected cash flow of 6,939 dollars in 2 years. Project A is considered more risky than an average-risk project at Indigo River Entertainment, such that the appropriate discount rate for it is 2.04 percentage points different than the discount rate used for an average-risk project at Indigo River Entertainment....
A. Several companies, including Orange Valley Industrial and White Mountain Banking, are considering project A, which...
A. Several companies, including Orange Valley Industrial and White Mountain Banking, are considering project A, which is believed by all to have a level of risk that is equal to that of the average-risk project at Orange Valley Industrial. Project A is a project that would require an initial investment of 4,577 dollars and then produce an expected cash flow of 8,011 dollars in 5 years. Project A has an internal rate of return of 11.85 percent. The weighted-average cost...
Silver Sun Entertainment is evaluating a 1-year project that would involve an initial investment in equipment...
Silver Sun Entertainment is evaluating a 1-year project that would involve an initial investment in equipment of 36,900 dollars and an expected cash flow of 39,600 dollars in 1 year. The project has a cost of capital of 6.63 percent and an internal rate of return of 7.32 percent. If Silver Sun Entertainment were to use 36,900 dollars in cash from its bank account to purchase the equipment, the net present value of the project would be 238 dollars. However,...
Several companies, including Indigo River Industrial and Red Royal Consulting, are considering project A, which is...
Several companies, including Indigo River Industrial and Red Royal Consulting, are considering project A, which is believed by all to have a level of risk that is equal to that of the average-risk project at Indigo River Industrial. Project A is a project that would require an initial investment of 4,700 dollars and then produce an expected cash flow of 5,824 dollars in 4 years. Project A has an internal rate of return of 5.51 percent. The weighted-average cost of...
Homework: 12) You are trying to calculate the weighted average cost of capital for investment property...
Homework: 12) You are trying to calculate the weighted average cost of capital for investment property group in San Francisco, CA. The owners secured a loan at a 6 percent rate and are in a 15 percent tax bracket. The property has initial investment of $22,00,000. We can assume that the net cash flow for 2019 of $543,000 will remain the same until 2029, after which it drops to zero dollars. You are provided with the following information for cost...
Based upon the following facts calculate the Weighted Average Cost of Capital (WACC) for Student Success...
Based upon the following facts calculate the Weighted Average Cost of Capital (WACC) for Student Success Corporation (SSC): PART 1 – WACC Tax rate = 40% Debt Financing: $10,000 Face Value 10-Year, 5% Coupon, Semiannual Non-Callable Bonds Selling for $11,040 New bonds will be privately placed with no flotation cost. Common Stock: Current Price $40; Current Dividend = $3.00 and Growth Rate = 5%. Common Stock: Beta = 1.1; Risk Free Rate 2.0%; Required Return of the Market 7% Capital...
Suppose Celestial Crane Cosmetics is evaluating a Suppose Celestial Crane Cosmetics is evaluating a proposed capital...
Suppose Celestial Crane Cosmetics is evaluating a Suppose Celestial Crane Cosmetics is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $500,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $450,000 Year 3 $450,000 Year 4 $450,000 Celestial Crane Cosmetics’s weighted average cost of capital is 10%, and project Alpha has the same risk as the firm’s average project. Based on the cash...
Fama's Llamas has a weighted average cost of capital of 12.5 percent. The company's cost of...
Fama's Llamas has a weighted average cost of capital of 12.5 percent. The company's cost of equity is 17 percent, and its pretax cost of debt is 7 percent. The tax rate is 34 percent. What is the company's target debt-equity ratio? Stock in Country Road Industries has a beta of 0.91. The market risk premium is 7.5 percent, and T-bills are currently yielding 5 percent. The company's most recent dividend was $1.7 per share, and dividends are expected to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT