Kamara Manufacturing has a debt-equity ratio of 0.3. The firm is analyzing a new project that requires an initial cash outlay of $268,500 for equipment. The flotation cost is 10.8 percent for equity and 6.1 percent for debt. What is the initial cost of the project including the flotation costs? Total initial cost = $

Kamara Manufacturing has a debt-equity ratio of 0.3. The firm is analyzing a new project that requires an initial cash outlay of $268,500 for equipment. The flotation cost is 10.8 percent for equity and 6.1 percent for debt. What is the initial cost of the project including the flotation costs? Total initial cost = $

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 21P: Your division is considering two investment projects, each of which requires an up-front expenditure...

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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): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
Double Happiness Ltd. is considering a project with an initial start up cost of $960,000. The firm maintains a debt-equity ratio of 0.50 and has a flotation cost of debt of 6.8 percent and a flotation cost of equity of 11.4%. The firm has sufficient internally generated equity to cover the equity cost of this project. What is the initial cost of the project including the flotation costs?
Wags Dog Emporium is considering a project that requires an initial investment of $280,000. Wags maintains a debt-equity ratio of 0.55, has a flotation cost of debt of 7.5 percent and a flotation cost of equity of 10.5 percent. The firm has sufficient internally generated equity to cover the equity portion of this project and will not issue additional equity. What is the initial cost of the project including the flotation costs? Group of answer choices $263,983 $272,552 $279,592 $287,652 $311,762
A project will cost $30 in year 1 and generate earnings before interest, taxes and depreciation of $20 in year 1, $15 in year 2 and $10 in year 3. The inital cost is to be linearly depreciated over three years. The company has a marginal corporate income tax rate of 21% and the appropriate unlevered cost of capital for the project is 12%. a: What is the NPV of the project if the firm is all equity-financed? b: What is the APV of the project if the firm uses $30 debt finance in the first year at an expected rate of return of 5%? The company will pay interest in years 2 and 3 and pay off the loan in year 3
Daniel 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.
For a proposed manufacturing plant, a fixed capital investment of P11,000,000 is required together with an estimated working capital of P2,500,000. Annual depreciation is estimated to be 10% of the fixed capital investment and annual profit is estimated to be P4,000,000. Based only on these given information, a. using the ROR method, what is the net annual profit of the project (in Php)? b. what is the rate of return of the proposed project (in 9%)? c. using the payback period method, what is the net annual cash flow of the project (in Php)? d. what is the payback period of this project (in years)?
Lane Industries is considering three independent projects, each of which requires a $2.4 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are the following: Project H (high risk): Cost of capital = 14% IRR = 16% Project M (medium risk): Cost of capital = 9% IRR = 7% Project L (low risk): Cost of capital = 9% IRR = 10% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and it expects to have net income of $4,200,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio?
Lane Industries is considering three independent projects, each of which requires a $2.8 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital = 12% IRR = 14% Project M (medium risk): Cost of capital = 9% IRR = 7% Project L (low risk): Cost of capital = 6% IRR = 7% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and it expects to have net income of $3,900,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
Zoombie Brewery is considering a project with estimated operating income of $40M per year. The project's unlevered cost of capital is 9.9%, the cost of debt is 7.9%, the debt-equity ratio is 1.9, and the tax rate is 40%. What is the relevant cost of capital if the APV method is used?
Walsh Company is considering three independent projects, each of which requires a $3 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital = 17% Project M (medium risk): Cost of capital = 15% Project L (low risk): Cost of capital = 7% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 45% debt and 55% common equity, and it expects to have net income of $14,800,500. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. IRR = 21% IRR = 12% IRR = 8% LO (Ctrl) -
The Suboptimal Glass Company uses a process of capital rationing in its decision making. The firm's cost of capital is 14 percent. It will invest only $50, 500 this year. It has determined the IRR for each of the following projects: Project Project Size Internal Rate of Return A $ 10, 100 17.0% B 30, 300 16.0 C 25,250 15.0 D 10, 100 17.5 E 10, 100 18.0 F 20, 200 24.0 G 15,150 12.0 a. Pick out the projects that the firm should accept. (You may select more than one answer. Click the box with a check mark for the correct answer and click to empty the box for the wrong answer.) check all that apply 1 Project Bunanswered Project Cunanswered Project Dunanswered Project Eunanswered Project Funanswered Project Gunanswered Project Aunanswered b. If projects E and F are mutually exclusive, how would that affect your overall answer? That is, which projects would you accept in spending the $ 50, 500? (You may select more than one answer. Click the box with a check mark for the correct answer and…
The Welch Company is considering three independent projects, each of which requires a $5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are as follows: Project H (high risk): Cost of capital = 16%; IRR = 20% Project M (medium risk): Cost of capital = 12%; IRR = 10% Project L (low risk): Cost of capital = 8%; IRR = 9% Note that the projects’ cost of capital varies because the projects have different levels of risk. The company’s optimal capital structure calls for 50% debt and 50% common equity. Welch expects to have net income of $7,287,500. If Welch bases its dividends on the residual model (all distributions are in the form of dividends), what will its payout ratio be?