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- GoldPure is considering the following independent, average-risk investment projects: Project Size of Project Project IRR Project V P1.0 million 12.0% Project W 1.2 million 11.5 Project X 1.2 million 11.0 Project Y 1.2 million 10.5 Project Z 1.0 million 10.0 The company has a target capital structure that consists of 50 percent debt and 50 percent equity. Its after-tax cost of debt is 8 percent, its cost of equity is estimated to be 16.5 percent, and its net income is P2.5 million. If the company follows a residual dividend policy, what will be its plowback ratio? Answers: a. 32% b. 100% c. 12% d. 54% e. 68% f. 66% g. 0Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of return Beta, b Risk-free asset 9% 0.00 Market portfolio 14% 1.00 Project 1.74 a. Calculate the required rate of return for the project, given its level of nondiversifiable risk. b. Calculate the risk premium for the project, given its level of nondiverisifiable risk.Wolff Enterprises must consider several investment projects, A through E, using the capital asset pricing model (CAPM) and its graphical representation, the security market line (SML). Relevant information is presented in the following table ITEM RATE OF RETURN BETA Risk-free asset 9% 0.0 Market portfolio 14% 1.0 Project A - 1.5 Project B - 0.75 Project C - 2.00 Project D - 0.0 Project E - -0.50 Calculate (1) the required rate of return and (2) the risk premium for each project, given its level of nondiversifiable risk. Use your findings in part a to draw the security market line (required rate of return relative to nondiversifiable risk) Discuss the relative nondiversifiable risk of projects A through E. Assume that recent economic events have caused investors to become less risk-averse, causing the market return to decline to 12%. Calculate the new required returns fcor assets A through E and draw the new security market line on the same graph you drew for b. Compare your findings…
- 8 GoldPure is considering the following independent, average-risk investment projects:Project Size of Project Project IRRProject V P1.0 million 12.0%Project W 1.2 million 11.5Project X 1.2 million 11.0Project Y 1.2 million 10.5Project Z 1.0 million 10.0The company has a target capital structure that consists of 50 percent debt and 50 percent equity. Its after-tax cost of debt is 8 percent, its cost of equity is estimated to be 16.5 percent, and its net income is P2.5 million. If the company follows a residual dividend policy, what will be its plowback ratio? Group of answer choices 0 54% 68% 100% 32% 12% 66%Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of Return Beta, b Risk free asset 8% 0.00 Market Portfolio 13% 1.00 Project 1.12 The required rate of return for the project is? THe risk premium for the price is?Mantap Industries has three projects under consideration. Project L is a lower-than-averagerisk project, project A is an average-risk project, and project H is a higher-than-average-riskproject. You have gathered the following information to determine if one or more of theseprojects has an acceptable rate of return for the firm.• Sources of financing 50% debt and 50% equity• Rd = 8.00% before taxes• Tax Rate = 30%• Average beta for Mantap Industries = 1.0• Rm = 13.00%• Rf = 4.00%• Adjusted WACC = 9.30%• Beta for project L = 0.80, for project A = 1.00, and for project H = 1.20• IRRL = 9.00%, IRRA = 10.00%, and IRRH = 11.00%Calculate the required rate of return for each project and determine which, if any, projects are acceptable to the firm
- Lopez Industries has identified the following two mutually exclusive capital investment projects: Year Project A Project B 0 -16000 -15500 1 400 12500 2 800 8000 3 13000 800 4 14000 800 If the required return is 11%, what is the NPV for each of these projects? Which project should the firm accept if they apply the NPV rule?Org Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net cash flows are as follows: Expected Cash Flows Year Project A Project B0 -400 -575 1 95 150 2 110 200 3 118 250 4 125 275 5 140 230 6 150 180 What is the profitability index for each project if the cost of capital is 12%?Suppose Mullens Corporation is considering three average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,500 23.00% 2 $3,000 30.00% 3 $2,750 24.00% Mullens estimates that it can issue debt at a rate of rd=20.00%rd=20.00% and a tax rate of T=25.00%T=25.00%. It can issue preferred stock that pays a constant dividend of Dp=$20.00Dp=$20.00 per year and at Pp=$200.00Pp=$200.00 per share. Also, its common stock currently sells for P0=$16.00P0=$16.00 per share. The expected dividend payment of the common stock is D1=$4.00D1=$4.00 and the dividend is expected to grow at a constant annual rate of g=5.00%g=5.00% per year. Mullens’ target capital structure consists of ws=75.00%ws=75.00% common stock, wd=15.00%wd=15.00% debt, and wp=10.00%wp=10.00% preferred stock. 1.According to the video, the after-tax cost of debt can be stated as ________________ . Plugging in the values for rdrd and (T)T yields an after-tax cost of…
- Daymore plc is currently considering three investment opportunities. The following is the details of the investments:-Project A:-1. initial outlay $80m2. Future net inflows Year 1: $190mYear 2: $10mProject B:-1. initial outlay $140m2. Future net inflows Year 1: $180mYear 2: $120mProject C:-1. initial outlay $90m2. Future net inflows Year 1: $10mYear 2: $220mThe company has a capital budget that is restricted in the year of the investment and it will not be possible to undertake all three projects in full. The investment opportunities are independent of one another and each project is divisible (that is, it is possible to undertake part of an investment and to receive a pro-rata return). The cost of capital of the company is 12% and the company uses the net present value method of investment appraisal.Required:Calculate and determine the ranking of the three investment opportunities? (The ranking for the first choice, second choice, and third choice is 1, 2, and 3 respectively). Show…Compute the NPV statistic for Project Y. Explain whether or not the firm should accept or reject the project with the cash flows shown in the chart below if the appropriate cost of capital is 10%. Year 0 = -8,000, year 1 = 3,350, Year 2 = 4,180, Year 3 = 1,520, Year 4 = $300Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows: Construct NPV profiles for Projects A and B. What is each project’s IRR? If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) What is the crossover rate, and what is its significance?
