Juhayna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flow Project A Project B Project C Initial Investment 100000 120,000 130,000 Year 1 Cash Inflows 30000 36,500 38000 Year 2 cash inflows 35000 45000 20000 Year 3 cash inflows 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows 20000 30000 50000 Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%. TO dO Create a spreadsheet to answer the following questions: Calculate the firm‘s cost of capital ( WACC) Calculate the payback period for each project. Calculate the net present value (NPV) of each project, Calculate the internal rate of return (IRR) for each project. Discuss any conflict in ranking that may exist between NPV and IRR. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
Juhayna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flow Project A Project B Project C Initial Investment 100000 120,000 130,000 Year 1 Cash Inflows 30000 36,500 38000 Year 2 cash inflows 35000 45000 20000 Year 3 cash inflows 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows 20000 30000 50000 Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%. TO dO Create a spreadsheet to answer the following questions: Calculate the firm‘s cost of capital ( WACC) Calculate the payback period for each project. Calculate the net present value (NPV) of each project, Calculate the internal rate of return (IRR) for each project. Discuss any conflict in ranking that may exist between NPV and IRR. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
100%
Question 3:
Juhayna Food Industries is attempting to select the best of three mutually exclusive projects.
The initial investment and after-tax
|
Cash flow |
Project A |
Project B |
Project C |
|
Initial Investment |
100000 |
120,000 |
130,000 |
|
Year 1 Cash Inflows |
30000 |
36,500 |
38000 |
|
Year 2 cash inflows |
35000 |
45000 |
20000 |
|
Year 3 cash inflows |
40000 |
40000 |
42000 |
|
Year 4 cash inflows |
38000 |
35000 |
45000 |
|
Year 5 cash inflows |
20000 |
30000 |
50000 |
Taking into consideration that the cost of debt 7% , cost of
TO dO
Create a spreadsheet to answer the following questions:
- Calculate the firm‘s cost of capital ( WACC)
- Calculate the payback period for each project.
- Calculate the
net present value (NPV) of each project, - Calculate the
internal rate of return (IRR) for each project. - Discuss any conflict in ranking that may exist between NPV and IRR.
- Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education