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A developer is pursuing a project with the following: Capital cost of project: $100,000.00 Initial working Capital: $5000.00 Economic life of project: 5 years Residual Value (year 6): $20,000.00 Net cash Y1 Y2 Y3 Funding from lenders: 80% Interest rate on loan: 10% Reinvestment rate: 15% Tax rate: 30% Y4 Y5 25000.00 30000.00 (-16000.00) 35000.00 40000.00

A developer is pursuing a project with the following: Capital cost of project: $100,000.00 Initial working Capital: $5000.00 Economic life of project: 5 years Residual Value (year 6): $20,000.00 Net cash Y1 Y2 Y3 Funding from lenders: 80% Interest rate on loan: 10% Reinvestment rate: 15% Tax rate: 30% Y4 Y5 25000.00 30000.00 (-16000.00) 35000.00 40000.00

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 21P
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A developer is pursuing a project with the following: Capital cost of project : $100,000.00 Initial working Capital: $5000.00 Economic life of project: 5 years Residual Value (year 6): $20,000.00 Y1 Y2 Y3 Funding from lenders: 80% Interest rate on loan: 10% Reinvestment rate: 15% Tax rate: 30% Y4 Y5 Net 25000.00 30000.00 (-16000.00) 35000.00 40000.00 cash flow Calculate: a. Weighted average Cost of Capital b. The net present value of the project c. The moified IRR d Plot the NPV Profile and determine the IRR
Transcribed Image Text:A developer is pursuing a project with the following: Capital cost of project : $100,000.00 Initial working Capital: $5000.00 Economic life of project: 5 years Residual Value (year 6): $20,000.00 Y1 Y2 Y3 Funding from lenders: 80% Interest rate on loan: 10% Reinvestment rate: 15% Tax rate: 30% Y4 Y5 Net 25000.00 30000.00 (-16000.00) 35000.00 40000.00 cash flow Calculate: a. Weighted average Cost of Capital b. The net present value of the project c. The moified IRR d Plot the NPV Profile and determine the IRR
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