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Juhayna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flow Project A Project B Project C Initial Investment 100000 120,000 130,000 Year 1 Cash Inflows  30000 36,500 38000 Year 2 cash inflows 35000 45000 20000 Year 3 cash inflows 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows 20000 30000 50000   Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%.   TO dO Create a spreadsheet to answer the following questions: Calculate the firm‘s cost of capital ( WACC) Calculate the payback period for each project. Calculate the net present value (NPV) of each project, Calculate the internal rate of return (IRR) for each project. Discuss any conflict in ranking that may exist between NPV and IRR. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why

Juhayna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flow Project A Project B Project C Initial Investment 100000 120,000 130,000 Year 1 Cash Inflows  30000 36,500 38000 Year 2 cash inflows 35000 45000 20000 Year 3 cash inflows 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows 20000 30000 50000   Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%.   TO dO Create a spreadsheet to answer the following questions: Calculate the firm‘s cost of capital ( WACC) Calculate the payback period for each project. Calculate the net present value (NPV) of each project, Calculate the internal rate of return (IRR) for each project. Discuss any conflict in ranking that may exist between NPV and IRR. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why

Essentials Of Investments
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
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Juhayna Food Industries is attempting to select the best of three mutually exclusive projects.

The initial investment and after-tax cash inflows associated with these projects are shown in the following table.

Cash flow

Project A

Project B

Project C

Initial Investment

100000

120,000

130,000

Year 1 Cash Inflows 

30000

36,500

38000

Year 2 cash inflows

35000

45000

20000

Year 3 cash inflows

40000

40000

42000

Year 4 cash inflows

38000

35000

45000

Year 5 cash inflows

20000

30000

50000

  Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%.

 

TO dO

Create a spreadsheet to answer the following questions:

  1. Calculate the firm‘s cost of capital ( WACC)
  2. Calculate the payback period for each project.
  3. Calculate the net present value (NPV) of each project,
  4. Calculate the internal rate of return (IRR) for each project.
  5. Discuss any conflict in ranking that may exist between NPV and IRR.
  6. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
Question 3: Juhavna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Project B 120,000 36,500 Project C 130,000 Cash flow Project A Initial Investment 100000 Year 1 Cash Inflows Year 2 cash inflows Year 3 cash inflows 30000 38000 35000 45000 20000 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows Taking into consideration that the cost of debt 7%, cost of preferred stock 12% and cost of newl common stock 15%. The weight of each source of capital are long term debt 30%, preferred stock 20% and common stock equity 50%. 20000 30000 50000 TO do Create a spreadsheet to answer the following questions: a) Calculate the firm's cost of capital ( WACC) b) Calculate the payback period for each project. c) Calculate the net present value (NPV) of each project, d) Calculate the internal rate of return (IRR) for each project. e) Discuss any conflict in ranking that may exist between NPV and IRR. f) Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
Transcribed Image Text:Question 3: Juhavna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Project B 120,000 36,500 Project C 130,000 Cash flow Project A Initial Investment 100000 Year 1 Cash Inflows Year 2 cash inflows Year 3 cash inflows 30000 38000 35000 45000 20000 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows Taking into consideration that the cost of debt 7%, cost of preferred stock 12% and cost of newl common stock 15%. The weight of each source of capital are long term debt 30%, preferred stock 20% and common stock equity 50%. 20000 30000 50000 TO do Create a spreadsheet to answer the following questions: a) Calculate the firm's cost of capital ( WACC) b) Calculate the payback period for each project. c) Calculate the net present value (NPV) of each project, d) Calculate the internal rate of return (IRR) for each project. e) Discuss any conflict in ranking that may exist between NPV and IRR. f) Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
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