answer and show solution required abc EGG PRIDE, vice president of Breakfast club Stores has decided which of the followingfive projects should be accepted by her company:ProjectPRIDEInvestment Cost200,000100,000175,000100,000150,000Internal rate of return26% pa12%18%22%16%The company finances all expansion with 30% debts and 70% equity capital. The cost of debt(before tax) is 10% for the first P100,000. The cost of any additional debt is 14%. The company'scommon stock is currently selling for P50 per share. Flotation costs are 15% of the selling price.The company's growth rate in earnings per share is anticipated to continue at a constant rate of12% per year. The company's earnings per share this year was P5.50. The company payout is60%. The company has P170.000 of internal funds available for investment purposes.Required:a. What is the WACC for the first P100,000 of debt and P170,000 equity?b. Assuming debt is more than P100,000 land equity is more than P170,000, what is WACC?c. Which projects to be accepted? Why?

Several projects have been identified and their IRR has been calculated. The projects are up for…

Answered: EGG PRIDE, vice president of Breakfast…

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

See similar textbooks

Similar questions

ABC Industries is considering a 3-year project that will cost $200 today followed by free cash flows to firm of $100 in year 1, $80 in year 2, and $160 in year 3. ABC has $1000 of assets with a debt ratio of 40.00%. ABC's before-tax cost of debt is 7.00% and its cost of equity is 12.00%. Suppose ABC pays a fee of$6 to the investment bankers who help them to raise the $120 Debt capital. Assuming the tax rate is 35.00% and that the flotation cost can be amortized (i.e. deducted) for tax purposes over the 3 year life of the project. The NPV of the project using the APV method, taking into account the flotation costs, is closest to: $8.40 $11.34 $10.66 $7.72
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales -$18 million Operating costs (not including depreciation) - $9 million Depreciation - $4 million Interest expense - $3 million The company faces a 25% tax rate. What is the project’s cash flow for the first year (t =1)?
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $18 million Operating costs (not including depreciation) $7 million Depreciation $5 million Interest expense $4 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar. $
Harris Inc. is a book publisher that is considering developing an e - reader. The project requires 270 ($ thousand) in capital expenditures upfront. The production will continue for two years, and the FCFs in years 1 and 2 are 150 and 170 (in $ thousand). The tax rate is 50%. The asset cost of capital for the book publishing industry is 8%. Harris's cost of debt is 6% Turbo Inc. is a public firm that sells e - readers. It has a debt to value ratio 1/2 Its equity cost of capital is 22% and its debt cost of capital is 4% (a) What is the NPV of the project if it is entirely financed with equity (in $ thousand)? enter your response here (Round to two decimal places.) (b) What is the NPV of the project if Harris maintains a fixed D / E ratio of 1/1 and finances the project with this D / E ratio (in $ thousand)? your response here enter (Round to two decimal places.
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales Operating costs (not including depreciation) $ $ 22 million 10 million $ 6 million $ 4 million $ Depreciation Interest expense The company faces a 25% tax rate. What is the project's cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.
Robust Ventures is planning to expand its production operation. It has identified three different technologies for meeting the goal. The initial investment and annual revenues with respect to each of the technologies are summarized in table below. Initial Investment Annual Revenue Life (years) (Php) (Php) Technology X 1,200,000 400,000 10 Technology Y 2,000,000 600,000 10 Technology Z 1,800,000 500,000 10 Assuming 20% interest rate, compounded annually, find the future worth of Technology Z. O a. Php 24 million O b. Php 42 million c. Php 30 million d. Php 20 million
Wivenhoe Ltd wants to expand its market and is considering two mutually exclusive projects as follows: Project A: This project requires an initial investment of £178,000 with a four- year life span. Wivenhoe Ltd has already paid £20,000 to a market research company. Forecasted sales and operating expenses are shown in the table below: Year 1 Year 2 Year 3 Year 4 Sales revenue (£) 260,000 290,000 300,000 280,000 Material cost (£) 100,000 120,000 115,000 118,000 Labour cost (£) 60,000 72,000 52,000 66,000 Other fixed cost (not 10,000 10,000 18,000 18,000 including depreciation) Project B: This project requires an initial investment of £480,000 with a four- year life span. The forecasted annual accounting profit is £80,000 over four years. The following information applies to both projects: • Residual value at the end of the economic life of each project is nil, and straight line depreciation applies. • All sales are expected to be cash sales, and operation expenses are paid for in cash…
Robust Ventures is planning to expand its production operation. It has identified three different technologies for meeting the goal. The initial investment and annual revenues with respect to each of the technologies are summarized in table below. Initial Investment Annual Revenue Life (years) (Php) (Php) Technology X 1,200,000 400,000 10 Technology Y 2,000,000 600,000 10 Technology Z 1,800,000 500,000 10 Assuming 20% interest rate, compounded annually, find the future worth of Technology Y.
Robust Ventures is planning to expand its production operation. It has identified three different technologies for meeting the goal. The initial investment and annual revenues with respect to each of the technologies are summarized in table below. Annual Revenue Initial Life Investment (years) (Php) (Php) Technology X 1,200,000 400,000 10 Technology Y 2,000,000 600,000 10 Technology Z 1,800,000 500,000 10 Assuming 20% interest rate, compounded annually, find the future worth of Technology Y. a. Php 25 million O b. Php l15 million O c. Php 35 million d. Php 20 million
The directors of Pelta Co are considering a planned investment project costing $25m, payable at the start of the first year of operation. The following information relates to the investment project: Year 1 Year 2 Year 3 Year 4 Sales volume (units/year) 520,000 624,000 717,000 788,000 Selling price ($/unit) 30·00 30·00 30·00 30·00 Variable costs ($/unit) 10·00 10·20 10·61 10·93 Fixed costs ($/year) 700,000 735,000 779,000 841,000. This information needs adjusting to take account of selling price inflation of 4% per year and variable cost inflation of 3% per year. The fixed costs, which are incremental and related to the investment project, are in nominal terms. The year 4 sales volume is expected to continue for the foreseeable future. Pelta Co pays corporation tax of 30% one year in arrears. The company can claim tax-allowable depreciation on a 25% reducing balance basis. The views of the directors of Pelta Co are that all investment projects must be evaluated over four years of…
Robust Ventures is planning to expand its production operation. It has identified three different technologies for meeting the goal. The initial investment and annual revenues with respect to each of the technologies are summarized in table below. Initial Annual Life Investment Revenue (years) (Php) (Php) Technology X 1,200,000 400,000 10 Technology Y 2,000,000 600,000 Technology Z 1,800,000 500,000 10 Assuming 20% interest rate, compounded annually, find the future worth of Technology Z. 10
Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, that both cost $170,000. The company's board of directors has set a 4-year payback requirement the cost of capital is 11%. The project cash flows are shown in the following table attached. a. Calculate the payback period for each project. Rank the projects by payback period. b. Calculate the NPV of each project. Rank the project by NPV. c. Calculate the IRR of each project. Rank the project by IRR. d. Make a recommendation.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS