Question

A company has two separate projects A and B. Project A has less risk than Project...

A company has two separate projects A and B. Project A has less risk than Project B and company requires WACC plus 0.5 percent return for Project A. Project B has more risk and the firm asks its WACC plus 1 percent return. The company has a debt-equity ratio of .45. The company’s cost of equity is 14.7 percent and the after-tax cost of debt is 5.1 percent. If you expect 11.64 percent rate of return from project A and 12.30 percent return from project B, what should be your decision? The company’s tax rate is 35%.

Answer selection is as follows:

A) Reject both

b) Accept B and reject A

c) Accept A and reject B

d) Accept both

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

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
Piedmont Hotels is an all-equity company. Its stock has a beta of 1.17. The market risk...
Piedmont Hotels is an all-equity company. Its stock has a beta of 1.17. The market risk premium is 6.6 percent and the risk-free rate is 2.4 percent. The company is considering a project that it considers riskier than its current operations so it wants to apply an adjustment of 1.6 percent to the project's discount rate. What should the firm set as the required rate of return for the project? Multiple Choice 8.52% 8.91% 10.12% 7.31% 11.72% Bermuda Cruises issues...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of rd = 11%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $4.00 per year at $51.00 per share. Also, its common stock currently sells for $36.00...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3,000 15.00    3 5,000 13.75    4 2,000 12.50    The company estimates that it can issue debt at a rate of rd = 9%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $6.00 per year at $53.00 per share. Also, its common stock currently sells for $38.00...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $4 per year at $42 per share. Also, its common stock currently sells for $36...
You are considering two independent projects. The required rate of return is 13.75 percent for Project...
You are considering two independent projects. The required rate of return is 13.75 percent for Project A and 14.25 percent for Project B. Project A has an initial cost of $51,400 and cash inflows of $21,400, $24,900, and $22,200 for Years 1 to 3, respectively. Project B has an initial cost of $38,300 and cash inflows of $18,000 a year for 3 years. Which project(s), if any, should you accept? A. Reject both Projects. B. Accept both projects. C. Accept...
Target Corp has a current price of $73. It also has 521 million shares outstanding and...
Target Corp has a current price of $73. It also has 521 million shares outstanding and the market value of debt is $11,317 million. The company’s equity beta is 0.72. Its tax rate is 20%. Assume that the risk-free rate is 2.5% and the market return is 10%. The company’s cost of debt is 4.2%.    Compute the weighted average cost of capital (WACC) for Target Corp.If an investment project.generates a return of 10% and has similar risk level as...
Problem 10-18 WACC and optimal capital budget Adams Corporation is considering four average-risk projects with the...
Problem 10-18 WACC and optimal capital budget Adams Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $3 per year at $60 per share. Also,...
Subject WACC AND OPTIMAL CAPITAL BUDGET Adamson Corporation is considering four average-risk projects with the following...
Subject WACC AND OPTIMAL CAPITAL BUDGET Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3,000 15.00    3 5,000 13.75    4 2,000 12.50    The company estimates that it can issue debt at a rate of rd = 9%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $6 per year at $52 per share. Also, its...
Do a seven year project valuation given the information below.             Required return: WACC+1.5 percent...
Do a seven year project valuation given the information below.             Required return: WACC+1.5 percent             Initial investment: $7.4 million Yearly cash inflow: $1.54 million Cost of debt (pre-tax): 8.6% Cost of equity: 13.7% Debt-equity ratio:.0.65 Corporate tax rate: 35% Use NPV for the decision Answer choices are as follows: A) Accept because its NPV is $446,328 B) Reject because its NPV is -$372,963 C) Reject because its NPV is -$446,328 D) Accept because its NPV is $235,738
Bam Corporation is considering the following independent projects for the coming year. Their target capital structure...
Bam Corporation is considering the following independent projects for the coming year. Their target capital structure is 60 percent debt and 40 percent equity. The after-tax cost of debt is 6 percent and the cost of equity is 15 percent.                                                                                                             Expected                                                                      Required                                Rate of                          Risk Project              Investment                               Return                         Level A                   $13 million                                17%                              High B                     16 million                                9                                 Low C                     25 million                                 14                               Average D                  ...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT