An investment proposal requires $16,000 outlay now (at time zero) and returns a constant cash flow  of $7,000 per period before tax savings due to interest payments for the next four years. The proposal is  to have a market debt proportion of 50% (i.e., 0.50). The capital market requires per period rate of return  on equity of 27% and on debt of 9%. The corporate tax rate is 40%, and interest is deductible for the  calculation of income tax. Calculate the NPV and IRR based on: a. Weighted average cost of capital method b. Arditty‐Levy method c. Equity residual method d. Adjusted net present value method

Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 . What is the regular payback period for each of the projects? What is the discounted payback period for each of the projects? If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? What is the crossover rate? If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?

Bhupatbhai

Alpha Industries is considering a project with an initial cost of $8.8 million. The project will produce cash inflows of $1.68 million per year for 8 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.85 percent and a cost of equity of 11.43 percent. The debt-equity ratio is .68 and the tax rate is 40 percent. What is the net present value of the project? O $695,448 O $772,720 O $662,331 $803,629 O $439,544 A

Suppose you are running a capital budgeting analysis on a project with an estimated cost of $3 million.  The project is considered similar to the existing lines of businesses for the company.  Given the cash situation, the company will fund the project completely with a new debt of $3 million.  This new debt will be issued at 8% interest for 10 years.  The company has an estimated 11% WACC.  When conducting the capital analysis on this project, what should be your discount rate (cost of capital) for the project? Explain your answer briefly.

c) Consider this question: XYZ Company can borrow money at an interest rate of 10% (that's their Cost of Capital). They have an opportunity to invest in a project that will generate returns (Free Cash Flows) over the next three years. One year from now, the project will generate $80,000 in FCF, two years from now the project will generate $90,000 in FCF, and three years from now the project will generate $100,000 in FCF. The project will require an investment of $230,000. Is it worth doing? Time 1 year from now 2 years from now 3 years from now Free Cash Flow $ $ Cost of Capital 10% 80,000 90,000 100,000

A firm is considering a project that will generate perpetual after-tax cash flows of $16,000 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 6 percent on an after-tax basis. The firm's D/E ratio is 0.6. What is the most the firm can pay for the project and still earn its required return? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar. Maximum the firm can pay

Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 15%. The risk-free interest rate is 5%. Suppose that to raise the funds for the initial investment the firm borrows $40,000 at the risk-free rate and issues new equity to cover the remainder. In this situation, the cost of capital for the firm's levered equity is closest to:

Alpha Industries is considering a project with an initial cost of $8.5 million. The project will produce cash inflows of $1.51 million per year for 9 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.76 percent and a cost of equity of 11.37 percent. The debt-equity ratio is .65 and the tax rate is 40 percent. What is the net present value of the project?

Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.64 million per year for 10 years. The opportunity cost of capital is 10.35%, which reflects the project's business risk. a. Suppose the project is financed with $4 million of debt and $6 million of equity. The interest rate is 6.55% and the marginal tax rate is 21%. An equal amount of the debt will be repaid in each year of the project's life. Calculate APV. Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number. b. If the firm incurs issue costs of $650,000 to raise the $6 million of required equity, what will be the APV? Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number. Negative amount should be indicated by a minus sign. a. Adjusted present value b. Adjusted present…