Question

Your company is considering purchasing a new building as part of an expansion plan. The building...

Your company is considering purchasing a new building as part of an expansion plan. The building cost is $1.5 million. Instead of paying cash for the building out of the business, you plan to borrow $500,000 from your bank via a commercial loan, at a rate of 4.5%. The balance of the building cost will be pulled from your personal investment account, which has averaged only a 1% return the past eight years. The company will pay your personal loan back at a 3% interest rate. The cash flows from the building acquisition are expected to be steady over the next 10 years at $225,000 per year. Answer the following questions. Excel Format

A) What is the weighted average cost of capital (WACC) for the investment?

B) What is the present value of the cash flows?

C) What is the Net Present Value (NPV) of the investment?

D) What is the Internal Rate of Return (IRR) of the investment?

E) What is the payback period?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1. WACC = Weight of Debt * After Tax Cost of Debt + Weight of equity * Cost of Equity

WACC = 500000/1500000 * 4.50% + 1000000/1500000 * 3%

WACC = 3.50%

Please upvote if satisfied

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Your company is considering an expansion into a new product line. The project cash flows are...
Your company is considering an expansion into a new product line. The project cash flows are as follows:        Year                     Project A                                0                     -$60,000                                1                         44,000                                    2                          20,000                                     3                          14,000                    The required return for this project is 10%.          What is the NPV for the project? What is the IRR for the project? What...
Your company is considering the acquisition of a machine with an initial investment of $50,000, that...
Your company is considering the acquisition of a machine with an initial investment of $50,000, that will generate the following after-tax cash flows: year 1 $25,000 year 2 $24,000 year 3 $23,000 If the company tax rate is 20% and the cost of capital is 10%, What is the discounted payback period? Seleccione una: 2.59 years 2.04 years 2.36 years 2.47 years 2.95 years 2.65 years
Your company is undertaking a new project. A building was purchased 10 years ago for $750,000...
Your company is undertaking a new project. A building was purchased 10 years ago for $750,000 depreciated straight line to $150,000 (the land value) over 30 years. It is now worth $500,000 (including $150,000 land). The project requires improvements to the building of $100,000. The improvements are depreciated straight line to zero over the life of the project. The project will generate revenues of $325,000, $350,000, $375,000 and $400,000 for years 1-4, respectively. Annual cash operating expenses are $80,000, $100,000,...
Your company is considering the acquisition of a machine with an initial investment of $50,000, that...
Your company is considering the acquisition of a machine with an initial investment of $50,000, that will generate the following after-tax cash flows: year 1 $25,000 year 2 $24,000 year 3 $23,000 If the company tax rate is 20% and the cost of capital is 10%, What is the discounted payback period?
(A) A company is considering a major expansion of its product line. The initial outlay would...
(A) A company is considering a major expansion of its product line. The initial outlay would be $10,100,000 and the project would generate cash flows of $1,290,000 per year for 20 years. The appropriate discount rate is 10%. (a) calculate the NPV (b) calculate the PI (c) calculate the IRR (d) should this project be excepted? (B) The same company is considering a new system for its lot. The system will provide annual labor savings and reduced waste totaling $175,000...
(IRR, payback, and calculating a missing cash flow) Mode Publishing is considering building a new printing...
(IRR, payback, and calculating a missing cash flow) Mode Publishing is considering building a new printing facility that will involve a large initial outlay and then result in a series of positive cash flows for 4 years. The estimated cash flows associated with this project are: Year Project Cash Flow 0 ? 1 800 Million 2 400 Million 3 500 Million 4 100 Million If you know that the project has a regular payback of 2.8 years, what is the...
your company is undertaking a new project. a building was purchased 10 years ago for$ 750,000...
your company is undertaking a new project. a building was purchased 10 years ago for$ 750,000 depreciated straight line to $150,000( the land value) over 30 years. it is now worth $500,000( including $150,000 land).the project requires improvements to the building of $100,000 the improvements are depreciated straight line to zero over the life of the project. the project will generate revenues of $325,000$350,000$375,000$400,000 for years 1-4 respectively. Annual cash operating expenses are $80,000$100,000$120,000and $140,000, respectively. the project will last...
Access Part II of the IG009 Assessment Scenarios document. As the new product development manager, you...
Access Part II of the IG009 Assessment Scenarios document. As the new product development manager, you are considering investment proposals for two mutually exclusive investment opportunities. The two proposals must be evaluated using net present value (NPV), accounting rate of return (ARR), internal rate of return (IRR), and payback. Review the cash flow information in the “Investments” section of the Assessment Scenarios document, and then analyze the investment proposals using Excel or another spreadsheet software to calculate NPV, ARR, IRR,...
The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the...
The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $50 million on a large-scale, integrated plant that will provide an expected cash flow stream of $8 million per year for 20 years. Plan B calls for the expenditure of $15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $3.4 million per year for 20 years. The firm's cost of capital is...
You are considering building a shopping mall. The initial investment is ?$1.43. million. The cash flows...
You are considering building a shopping mall. The initial investment is ?$1.43. million. The cash flows are?$410,000 for year? 1,200,000 for year?2, $200,000 for year? 3, and ?$170,000 for year 4. What are the net present value? (NPV) and profitability index? (PI) of the project if the cost of capital is 12?%? Compute the internal rate of return? (IRR) for the project.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT