Assume that you are a new analyst hired to evaluate the capital budgeting projects of the company which is considering investing in two CPEC projects, "Expansion Zone North" and "Expansion Zone East". The initial cost of each project is Rs. 10,000. Company discount all projects based on WACC. Further, all the projects are equally risky projects and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at an interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50%% common equity. The dividend for next period is $2.0, its expected that they will grow at the constant growth rate of 8%, and the company's common stock sells for $20. The tax rate is 50%. The cash flows of both the projects are given in table belovw: Expansion Zone North Expansion Zone East Time Cashflows (amountin Rs.) Cashflows (amount in Rs.) 10,000 10,000 1 6,500 3,500 3,000 3,500 3,000 3,500 4 1,000 3,500 Carefully analyze the above table and answerthe following questions in detail. 1. Calculate the weighted average cost of capital for this firm? ! 2. Compute each project's IRR, NPV, payback, MIRR, and discounted payback. ( Which project(s) should be accepted if they are mutually exclusive? Explain ( Which project(s) should be accepted if they are independent? Explain 2.
Assume that you are a new analyst hired to evaluate the capital budgeting projects of the company which is considering investing in two CPEC projects, "Expansion Zone North" and "Expansion Zone East". The initial cost of each project is Rs. 10,000. Company discount all projects based on WACC. Further, all the projects are equally risky projects and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at an interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50%% common equity. The dividend for next period is $2.0, its expected that they will grow at the constant growth rate of 8%, and the company's common stock sells for $20. The tax rate is 50%. The cash flows of both the projects are given in table belovw: Expansion Zone North Expansion Zone East Time Cashflows (amountin Rs.) Cashflows (amount in Rs.) 10,000 10,000 1 6,500 3,500 3,000 3,500 3,000 3,500 4 1,000 3,500 Carefully analyze the above table and answerthe following questions in detail. 1. Calculate the weighted average cost of capital for this firm? ! 2. Compute each project's IRR, NPV, payback, MIRR, and discounted payback. ( Which project(s) should be accepted if they are mutually exclusive? Explain ( Which project(s) should be accepted if they are independent? Explain 2.
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
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Transcribed Image Text:Assume that you are a new analyst hired to evaluate the capital budgeting projects of the company which is considering investing in two CPEC projects,
"Expansion Zone North" and "Expansion Zone East". The initial cost of each project is Rs. 10,000. Company discount all projects based on WACC. Further, all
the projects are equally risky projects and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts
at an interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50%% common equity. The dividend for next
period is $2.0, its expected that they will grow at the constant growth rate of 8%, and the company's common stock sells for $20. The tax rate is 50%.
The cash flows of both the projects are given in table belovw:
Expansion Zone North
Expansion Zone East
Time
Cashflows (amountin Rs.) Cashflows (amount in Rs.)
10,000
10,000
1
6,500
3,500
3,000
3,500
3,000
3,500
4
1,000
3,500
Carefully analyze the above table and answerthe following questions in detail.
1. Calculate the weighted average cost of capital for this firm? !
2. Compute each project's IRR, NPV, payback, MIRR, and discounted payback. (
Which project(s) should be accepted if they are mutually exclusive? Explain (
Which project(s) should be accepted if they are independent? Explain
2.
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