Problem 4-1The Riverside Company is evaluating two mutually exclusive assets: Black and White, at the end of 2020. The firm's weighted averagecost of capital is 8%. Data for each project are as follows:BlackWhite25,000Cost of investment-end$43,000Cost of investment-end20202020Cash inflow-20218,000Cash inflow-202120,000Cash inflow-20228,000Cash inflow-202230,000Cash inflow-20238,000Cash inflow-202310,000Cash inflow-20248,000Cash inflow-2024Cash inflow-20258,000Cash inflow-2025Requirements:• Compute the net present value for each asset using Excel's NPV function.• Determine which project the Riverside Company should invest in based on NPV.Compute the profitability index for each project.• Determine which project the Riverside Company should invest in based on the profitability index.• Should the firm invest in the Black or White project? What is the basis for your choice?

Net present value(NPV) is the difference between the present value of all future cash flows and…

The Riverside Company is evaluating two mutually exclusive assets: Black and White, at the end of 2020. The firm's weigh cost of capital is 8%. Data for each project are as follows: Black White 25,000 Cost of investment-end $43,000 Cost of investment–end 2020 020 Cash inflow-2021 8,000 Cash inflow-2021 20,000 Cash inflow-2022 8,000 Cash inflow-2022 30,000 Cash inflow-2023 8,000 Cash inflow-2023 10,000 Cooh inflou 2004 0. 000 Conh inflou 2004

The Riverside Company is evaluating two mutually exclusive assets: Black and White, at the end of 2020. The firm's weigh cost of capital is 8%. Data for each project are as follows: Black White 25,000 Cost of investment-end $43,000 Cost of investment–end 2020 020 Cash inflow-2021 8,000 Cash inflow-2021 20,000 Cash inflow-2022 8,000 Cash inflow-2022 30,000 Cash inflow-2023 8,000 Cash inflow-2023 10,000 Cooh inflou 2004 0. 000 Conh inflou 2004

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 18PROB

See similar textbooks

Similar questions

Problem 2 ABM Enterprise would like to evaluate/analyze an investment proposal.Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for thesucceeding yearsDiscount rate - 14% a. NPV for the perio 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.
Problem 4–1 The Riverside Company is evaluating two mutually exclusive assets: Black and White, at the end of 2020. The firm’s weighted average cost of capital is 8%. Data for each project are as follows: Black White Cost of investment—end 2020 25,000 Cost of investment—end 2020 $43,000 Cash inflow—2021 8,000 Cash inflow—2021 20,000 Cash inflow—2022 8,000 Cash inflow—2022 30,000 Cash inflow—2023 8,000 Cash inflow—2023 10,000 Cash inflow—2024 8,000 Cash inflow—2024 0 Cash inflow—2025 8,000 Cash inflow—2025 0 Requirements: Compute the net present value for each asset using Excel's NPV function. Determine which project the Riverside Company should invest in based on NPV. Compute the profitability index for each project. Determine which project the Riverside Company should invest in based on the profitability index. Should the firm invest in the Black or White project? What is the basis for your…
Problem 4–1The Riverside Company is evaluating two mutually exclusive assets: Black and White, at the end of 2020. The firm’s weighted average cost of capital is 8%. Data for each project are as follows: Data is enclosed in the picture. Requirements: Compute the net present value for each asset using Excel's NPV function.Determine which project the Riverside Company should invest in based on NPV.Compute the profitability index for each project.Determine which project the Riverside Company should invest in based on the profitability index.Should the firm invest in the Black or White project? What is the basis for your choice?
The Riverside Company is evaluating two mutually exclusive assets: Black and White, at the end of 2020. The firm’s weighted average cost of capital is 8%. Data for each project are as follows: Black White Cost of investment—end 2020 25,000 Cost of investment—end 2020 $43,000 Cash inflow—2021 8,000 Cash inflow—2021 20,000 Cash inflow—2022 8,000 Cash inflow—2022 30,000 Cash inflow—2023 8,000 Cash inflow—2023 10,000 Cash inflow—2024 8,000 Cash inflow—2024 0 Cash inflow—2025 8,000 Cash inflow—2025 0 Requirements: Compute the net present value for each asset using Excel's NPV function. Determine which project the Riverside Company should invest in based on NPV. Compute the profitability index for each project. Determine which project the Riverside Company should invest in based on the profitability index. Should the firm invest in the Black or White project? What is the basis for your choice?…
The Riverside Company is evaluating two mutually exclusive assets: Black and White, at the end of 2020. The firm’s weighted average cost of capital is 8%. Data for each project are as follows: Black White Cost of investment—end 2020 25,000 Cost of investment—end 2020 $43,000 Cash inflow—2021 8,000 Cash inflow—2021 20,000 Cash inflow—2022 8,000 Cash inflow—2022 30,000 Cash inflow—2023 8,000 Cash inflow—2023 10,000 Cash inflow—2024 8,000 Cash inflow—2024 0 Cash inflow—2025 8,000 Cash inflow—2025 0 Requirements: Determine which project the Riverside Company should invest in based on the profitability index. Should the firm invest in the Black or White project? What is the basis for your choice?
The Riverside Company is evaluating two mutually exclusive assets: Black and White, at the end of 2020. The firm’s weighted average cost of capital is 8%. Data for each project are as follows: Black White Cost of investment—end 2020 25,000 Cost of investment—end 2020 $43,000 Cash inflow—2021 8,000 Cash inflow—2021 20,000 Cash inflow—2022 8,000 Cash inflow—2022 30,000 Cash inflow—2023 8,000 Cash inflow—2023 10,000 Cash inflow—2024 8,000 Cash inflow—2024 0 Cash inflow—2025 8,000 Cash inflow—2025 0 Requirements: Compute the net present value for each asset using Excel's NPV function. Determine which project the Riverside Company should invest in based on NPV. Compute the profitability index for each project. Determine which project the Riverside Company should invest in based on the profitability index. Should the firm invest in the Black or White project? What is the basis for your choice?
Problem 1: Fitch Industries is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects-M and N. The relevant cash flows for each project are shown in the following table. The firm's cost of capital is 14%. Project M Project N Initial investmecnt (CF) 528,500 527,000 Year (t) Cash inflows (CF) $10,000 10,000 10,000 10,000 $11,000 2. 10,000 9,000 4. 8,000 a. Calculate each project's payback period. b. Calculate the net present value (NPV) for each project. c. Calculate the internal rate of return (IRR) for each project. d. Summarize the preferences dictated by each measure you calculated and indicate which project you would recommend. Explain why.
Part D: Investment Decisions Now consider that Luxio has identified the following two mutually exclusive projects: Year 0 1 2 3 4 Cash Flow (A) -$34,000 $16,500 $14,000 $10,000 $6,000 Cash Flow (B) -$34,000 $5,000 $10,000 $18,000 $19,000. 1. What is the IRR for each of these projects? Based on IRR decision rule, which project should the company accept? 2. If the required return is 11%, what is the NPV for each of these projects? Based on the NPV decision rule, which project should the company accept? 3. Over what range of discount rates would the company choose project A? At what discount rate would the company be indifferent between these two projects? Explain.
Task 1: The firm has provided the following financial data: Cost of equity is 13.5%. Net income is €2,500. The firm is considering the following investment projects: Size of project IRR of project €1,000 12.0% €1,200 €1,200 €1,200 €1,000 ● ● Project A B C D E Target capital structure is 50% debt and 50% equity. After-tax cost of debt is 8%. 11.5% 11.0% 10.5% 10.0% 1) Determine the firm's weighted average cost of capital. 2) Identify the project(s) that the firm should accept. 3) Identify the total capital budget. 4) If the firm follows a residual dividend policy, determine its payout ratio.
AFN EQUATION Refer to Problem 16-1. What additional funds would be needed if the companys year-end 2019 assets had been 4 million? Assume that all other numbers are the same. Why is this AFN different from the one you found in Problem 16-1? Is the companys capital intensity the same or different? Explain.
Year Investment A 2016 $400.000 2017 $400.000 2018 $400.000 2019 $400.000 2020 $400.000 Investment B $100.000 $100.000 $100.000 $1.000.000 $1.000.000 calculate the Npv of both project
Use Table 8 to answer the next two questions. Assume the committed capital is $100, the management fee is 2.00%, and the carried interest is 20.00%. Year 2015 2016 2017 2018 2019 $5.40 What is the carried interest in 2019? Called-down Paid in capital Mgmt Fees $26 $31 $21 O $11.20 $9.12 $9.85 $10 $12 Table 8 Operating NAV before Carried NAV after Results Distributions Interest Distributions Distributions -$14 $6 $11 $41 $46 $5 $10