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The afc corporation has decided to build a new facility. It estimates the cost of facility at £9.7 million. AFC wishes to finance this project using its traditional debt-to-equity ratio of 1.5. The
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- XYZ Corp. raised P50 million from bonds and P110 million from ordinary shares. It invested P150 million of these into operating assets. Subsequently, XYZ was offered a project that is similar to its operations but requires a higher level of insurance coverage. This would require P10 million in invested capital. What is the most likely discount rate to be used for evaluating this project? *A. A project-specific rate which is the adjusted weighted average cost of capitalB. Weighted average cost of capitalC. Incremental cost of capitalD. A project-specific rate which is the adjusted incremental cost of capitalRyan Corporation is considering three investment projects: X, Y, and Z. Project X would require an investment of $20,000, Project Y of $69,000, and Project Z of $83,000. No other cash outflows would be involved. The present value of the cash inflows would be $23,200 for Project X, $77,970 for Project Y, and $94,620 for Project Z. Rank the projects according to the profitability index from most profitable to least profitable. (Ignore income taxes.) (A) Z, X, Y B) X,Z,Y C) Y, X, Z D) Z, Y, XThe board have assessed that they require funding of £50,000,000 to invest in future projects. Discuss the factors the company would have to take into account when choosing between debt or equity as a form of long-term finance.
- Ross Enterprises can raise capital from the source below: Ross has a new project that has an estimated IRR of 12%, but will require an investment of $220,000. Should Ross borrow the money and invest in the new project? What is Ross's weighted average cost of capital (WACC) if it needs to raise $220,000? Source of Funds Interest Rate Borrowing Limit Small business bureau 5% $60,000 Bank loan 7% $50,000 Bond market 12% $60,000 Owner's equity (stock) 16% $90,000Sandia corporation is considering two independent projects. For our purposes, we will call them projects A and B. Project A is expected to cost $40,019, and project B is expected to cost $44,980. Each project's expected cash flows are presented below. Both project A and B have similar risks to all other projects at Sandia. And the weighted average cost of capital for Sandia is 6.94%. Calculate the net present value of both projects, and enter in the box below how much the value of the firm is expected to increase based on this capital budget (please enter the amount to the nearest penny). Project A Project B Year 1 $8,075 $9,630 Year 2 $11,327 $11,089 Year 3 $13,469 $10,454 Year 4 $11,858 $14,908 Year 5 $13,694 $15,732Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: Proposal Investment Year Operating Income Net Cash Flow Proposal A: $500,000 1 $ 45,000 $ 145,000 Proposal A: 2 40,000 140,000 Proposal A: 3 25,000 125,000 Proposal A: 4 20,000 120,000 Proposal A: 5 5,000 105,000 Total $135,000 $635,000 Proposal B: $400,000 1 $ 40,000 $ 120,000 Proposal B: 2 20,000 100,000 Proposal B: 3 10,000 90,000 Proposal B: 4 10,000 90,000 Proposal B: 5 6,000 86,000 Total $ 86,000 $486,000 Proposal C: $380,000 1 $ 54,000 $ 130,000 Proposal C: 2 49,000 125,000 Proposal C: 3 49,000 125,000 Proposal C: 4 44,000 120,000 Proposal C: 5 44,000 120,000 Total $240,000 $620,000…
- If the market value of a capital improvement project is $1,447,024, and the bank will lend you 87.9% loan to value for a construction loan, how much investment capital do you need to raise?Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: Proposal Investment Year Operating Income Net Cash Flow Proposal A: $500,000 1 $ 45,000 $ 145,000 Proposal A: 2 40,000 140,000 Proposal A: 3 25,000 125,000 Proposal A: 4 20,000 120,000 Proposal A: 5 5,000 105,000 Total $135,000 $635,000 Proposal B: $400,000 1 $ 40,000 $ 120,000 Proposal B: 2 20,000 100,000 Proposal B: 3 10,000 90,000 Proposal B: 4 10,000 90,000 Proposal B: 5 6,000 86,000 Total $ 86,000 $486,000 Proposal C: $380,000 1 $ 54,000 $ 130,000 Proposal C: 2 49,000 125,000 Proposal C: 3 49,000 125,000 Proposal C: 4 44,000 120,000 Proposal C: 5 44,000 120,000 Total $240,000 $620,000…You are considering a project which requires $250,000 in external financing. The flotation cost of equity is 7% and the flotation cost of debt is 2.5%. You wish to maintain a debt-equity ratio of 0.55. What is the initial cost of the project including the flotation costs? a. $235,720 b. $263,508 c. $264,280 d. $254,752 e. $255,784
- Sunshine Corporation is reviewing an investment proposal. The initial cost of the investment is R52 500. The estimated cash flows and net profit for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. year Net cash flows Net profit 1 20000 2500 2 17500 3500 3 15000 4500 4 12500 5500 5 10000 6500 The cost of capital is 12%. Required:Calculate the following:1. Payback Period 2. Net Present value 3. Accounting rate of returnDaniel Electric is planning to open a distribution center. The center will cost $500,000.00. The company can finance 96% of the project with 8.2%, $10,000.00 bonds. The remaining capital will come from internal sources. Complete the form to evaluate the effect of financial leverage on the proposed center. Evaluate the earnings potential of the project assuming that operating income will increase by 7.6%, 7.8%, or 8.0% of the center cost.T&G Ltd has only £600,000 to invest and four possible projects, as follows: Project Initial investment £ NPV £ A (275,000) 55,225 B (160,000) 35,769 C (55,000) 15,385 D (320,000) 69,003 Projects cannot be scaled up but they can be scaled down if necessary. Rank the projects using the profitability index Allocate the capital available in the best way possible