Project Selection Midwest water works estimates that is WACC is 10.5%. The company is considering the following capital budgeting prokects: Project Size Rate of Return A $1 million 12.0% B 2 Million 11.5 c 2 million 11.2 D 2 million 11.0 E 1 million 10.7 F 1 million 10.3 G 1 Million 10.2 Assume that each of these projects is just as risky as the firm's existing assests and that the firm may accept all the projects or only some of them which set of projects should be accepted? Explain.

Project Selection Midwest water works estimates that is WACC is 10.5%. The company is considering the following capital budgeting prokects: Project Size Rate of Return A $1 million 12.0% B 2 Million 11.5 c 2 million 11.2 D 2 million 11.0 E 1 million 10.7 F 1 million 10.3 G 1 Million 10.2 Assume that each of these projects is just as risky as the firm's existing assests and that the firm may accept all the projects or only some of them which set of projects should be accepted? Explain.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

Scenario Analysis Shao Industries is considering a proposed project for its capital budget. The company estimates the projects NPV is 12 million. This estimate assumes that the economy and market conditions will be average over the next few years. The companys CFO, however, forecasts there is only a 50% chance that the economy will be average. Recognizing this uncertainty, she has also performed the following scenario analysis: What are the projects expected NPV, standard deviation, and coefficient of variation?
Midwest Water Works estimates that its WACC is 10.45%. The company is considering the following capital budgeting projects. Assume that each of these projects is just as risky as the firm's existing assets and that the firm may accept all the projects or only some of them. Which set of projects should be асcсepted? Project Size Rate of Return А $1 million 12.0% -Select- В 2 million 11.5 -Select- 2 million 11.2 -Select- 2 million 11.0 -Select- E 1 million 10.7 -Select- F 1 million 10.3 -Select- 1 million 10.2 -Select-
Midwest Water Works estimates that its WACC is 10.5%. The companyis considering the following capital budgeting projects:Project Size Rate of ReturnA $1 million 12.0%B 2 million 11.5C 2 million 11.2D 2 million 11.0E 1 million 10.7F 1 million 10.3G 1 million 10.2Assume that each of these projects is just as risky as the firm’s existing assets and thatthe firm may accept all the projects or only some of them. Which set of projects should beaccepted? Explain.
Ziege Systems is considering the following independent projects for the coming year: Project RequiredInvestment Rate ofReturn Risk A $4 million 13.25% High B 5 million 10.75 High C 3 million 8.75 Low D 2 million 8.50 Average E 6 million 11.75 High F 5 million 11.75 Average G 6 million 6.50 Low H 3 million 10.50 Low Ziege's WACC is 9.25%, but it adjusts for risk by adding 2% to the WACC for high-risk projects and subtracting 2% for low-risk projects. Which projects should Ziege accept if it faces no capital constraints? Project A accept or reject Project B accept or reject Project C accept or reject Project D accept or reject Project E accept or reject Project F accept or reject Project G accept or reject Project H accept or reject If Ziege can only invest a total of $13 million, which projects should it accept? Project A accept or reject Project B accept or reject Project C accept or reject Project D accept or reject Project E…
Ziege Systems is considering the following independent projects for the coming year: Project RequiredInvestment Rate ofReturn Risk A $4 million 14.75% High B 5 million 12.25 High C 3 million 10.25 Low D 2 million 9.5 Average E 6 million 13.25 High F 5 million 13.25 Average G 6 million 7.5 Low H 3 million 11.75 Low Ziege's WACC is 10.75%, but it adjusts for risk by adding 2% to the WACC for high-risk projects and subtracting 2% for low-risk projects. Which projects should Ziege accept if it faces no capital constraints? Project A -Select-AcceptRejectItem 1 Project B -Select-AcceptRejectItem 2 Project C -Select-AcceptRejectItem 3 Project D -Select-AcceptRejectItem 4 Project E -Select-AcceptRejectItem 5 Project F -Select-AcceptRejectItem 6 Project G -Select-AcceptRejectItem 7 Project H -Select-AcceptRejectItem 8 If Ziege can only invest a total of $13 million, which projects should it accept? Project A -Select-AcceptRejectItem 9 Project B…
Grey Fox Aviation Company is analyzing a project that requires an initial investment of $450,000. The project’s expected cash flows are: Year Cash Flow Year 1 $300,000 Year 2 –175,000 Year 3 475,000 Year 4 450,000 Grey Fox Aviation Company’s WACC is 10%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 26.73% 27.89% 20.92% 23.24% If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements best describes the difference between the IRR method and the MIRR method? The IRR method uses only cash inflows to calculate the IRR. The MIRR method uses both cash inflows and cash outflows to calculate the MIRR. The IRR method assumes that cash flows are reinvested at a rate of return equal to the IRR. The MIRR method assumes that cash flows…
Ziege Systems is considering the following independent projects for the coming year: Project A Required Investment Rate of Return Risk $4 million 13.25% High BCDEFGH 5 million 10.75 High 3 million 8.75 Low 2 million 8.50 Average 6 million 11.75 5 million 11.75 High Average 6 million 6.50 Н 3 million 10.50 Low Low If Ziege can only invest a total of $13 million, what would be the dollar size of its capital budget? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. $ million c. Suppose Ziege can raise additional funds beyond the $13 million, but each new increment (or partial increment) of $5 million of new capital will cause the WACC to increase by 1%. Assuming that Ziege uses the same method of risk adjustment, which projects should it now accept? Project A -Select- ✰ -Select- ◇ -Select- -Select- ✰ Project B Project C Project D Project E -Select- ✰ Project F -Select- ◊ Project G -Select- ◊ -Select- ✰…
Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $3,225,000. The project's expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 -125,000 Year 3 500,000 Year 4 400,000 If the company's WACC is 8% and the project has the same risk as the firm's average project, what is the project's modified internal rate of return (MIRR)? Should you accept or reject this project?
Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $2,500,000. The project's expected cash flows are: Year Cash Flow Year 1 $300,000 Year 2 -175,000 Year 3 425,000 Year 4 475,000 Celestial Crane Cosmetics's WACC is 9%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): 23.18% 24.29% -15.86% O 19.87% If Celestial Crane Cosmetics's managers select projects based on the MIRR criterion, they should this independent project.
Tomodachi Co plans to invest in either Projects M or N which are described below. The company's cost of capital is 15%, the market return is 15% and the risk-free rate is 5%. The beta for project M is 1.20 and the beta for project N is 1.40. What is the NPV for Project M when using the risk-adjusted discount rate method of project evaluation? Initial Investment Project M $700,000 Project N $780,000 Year 1 $300,000 $220,000 2 $300,000 320,000 3 $300,000 380,000 4 $300,000 460,000 or You must decide firm which of the proposed projects should be accepted for the upcoming year since only $6 million is available. Which projects should be accepted?
Cute Camel Woodcraft Company is analyzing a project that requires an initial investment of $400,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cute Camel Woodcraft Company's WACC is 8%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 27.56% O26.25% 28.88% Cash Flow $325,000 -175,000 475,000 475,000 O 23.63%
A project has initial costs of $1,000 and subsequent cash inflows of $700, 200, 200 and 200. The company's 10% cost of capital is an appropriate discount rate for this average risk project. Calculate the following: 1. Payback Period 2. NPV 3. Profitability Index 4. IRR 5. MIRR Please number/label each of your answers as shown above. Be sure to show your TVM function calculator inputs, and four decimal places.