Q1: Carrefour is expecting its new center to generate the following cash flows:
Years |
0 |
1 |
2 |
3 |
4 |
5 |
---|---|---|---|---|---|---|
Initial |
($35,000,000) |
|||||
Net operating cash-flow |
$6,000,000 |
$8,000,000 |
$16,000,000 |
$20,000,000 |
$30,000,000 |
a. Determine the payback for this new center. (1 mark)
b. Determine the net present value using a cost of capital of 15 percent. Should the project be accepted? (1 mark)
Q2. What is the EAC of two projects: project A, which costs $150 and is expected to last two years, and project B, which costs $190 and is expected to last three years? The cost of capital is 12%. (1 mark)
Q3. A company pays annual dividends of $10.40 with no possibility of it changing in the next several years. If the firm’s stock is currently selling at $80, what is the required rate of return? (1 mark)
Q4. Stag corp has a capital structure which is based on 50% common stock, 20% preferred stock and 30% debt. The cost of common stock is 14%, the cost of preferred stock is 8% and the pre-tax cost of debt is 10%. The firm's tax rate is 40%. (1 mark)
1]
a]
Payback period is the time taken for the cumulative cash flows to equal zero
Payback period = 3 + (cash flow required in year 4 for cumulative cash flows to equal zero / year 4 cash flow) = 3 + ($5,000,000 / $20,000,000) = 3.25 years
b]
NPV is calculated using NPV function in Excel
NPV is $13,137,167
Yes, the project should be accepted because the NPV is positive
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