Marble Cohst uction estimates that itS WACC IS 11% if equity comes from retained earnings. However, if the company ISsues new stock to raise new equity, it estimates that its WACC will rise to 11.8%. The company believes that it will exhaust its retained earnings at $2,300,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR A $ 610,000 14.2% 1,050,000 13.3 1,020,000 11.3 1,150,000 12.1 E 460,000 11.6 F 610,000 11.0 G 720,000 12.5 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A -Select- Project B -Select- Project C -Select- Project D -Select- Project E -Select- Project F -Select- Project G -Select- What is the firm's optimal capital budget? Round your answer to the nearest dollar.

Marble Cohst uction estimates that itS WACC IS 11% if equity comes from retained earnings. However, if the company ISsues new stock to raise new equity, it estimates that its WACC will rise to 11.8%. The company believes that it will exhaust its retained earnings at $2,300,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR A $ 610,000 14.2% 1,050,000 13.3 1,020,000 11.3 1,150,000 12.1 E 460,000 11.6 F 610,000 11.0 G 720,000 12.5 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A -Select- Project B -Select- Project C -Select- Project D -Select- Project E -Select- Project F -Select- Project G -Select- What is the firm's optimal capital budget? Round your answer to the nearest dollar.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8TP: Fenton, Inc., has established a new strategic plan that calls for new capital investment. The...

See similar textbooks

Similar questions

Witham, Inc. estimates that its retained earnings break point (BPRE) is $32 million, and its WACC is 11.2 percent if common equity comes from retained earnings. However, if the company issues new stock to raise new common equity, it estimates that its WACC will rise to 12.4 percent. The company is considering the following investment projects: Project A BUDE C Size $10 million A. $38 million B. $28 million C. $18 million D. $32 million E. None of the above 8 million 10 million 10 million 7 million What is the firm's optimal capital budget? IRR 14.0% 16.5 12.2 15.4 11.8
Marble Construction estimates that its WACC is 8% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 8.8%. The company believes that it will exhaust its retained earnings at $2,600,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR A 610,000 13.6% 1,030,000 13.6 990,000 8.6 D 1,200,000 9.1 E 490,000 8.7 F 610,000 8.3 G 750,000 9.4 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A аcсept Project B аcсept Project C аcсept Project D don't accept Project E don't accept : Project F don't accept : Project G аcсept What is the firm's optimal capital budget? Round your answer to the nearest dollar. $
Marble Construction estimates that its WACC is 9% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 9.5%. The company believes that it will exhaust its retained earnings at $2,400,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR A $ 610,000 13.7 % B 1,060,000 13.4 C 990,000 9.1 D 1,200,000 10.0 E 470,000 9.3 F 610,000 8.8 G 700,000 10.1 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A Project B Project C Project D Project E Project F Project G What is the firm's optimal capital budget? Round your answer to the nearest dollar. $
Dyrdek Enterprises has equity with a market value of $10.4 million and the market value of debt is $3.35 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.2 percent. The new project will cost $2.12 million today and provide annual cash flows of $556,000 for the next 6 years. The company's cost of equity is 10.91 percent and the pretax cost of debt is 4.84 percent. The tax rate is 39 percent. What is the project's NPV?
Marble Construction estimates that its WACC is 8% if equity comes from retained earnings However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 8.9%. The company believes that it will exhaust its retained earnings at $2,500,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Size $ 640,000 1,040,000 1,000,000 1,180,000 470,000 640,000 G 650,000 8.3 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? beled Project A B Select Seled Selec C D t Project A Project D Project C Project D Project E Project F Project G What is the firm's optimal capital budget? Round your answer to the nearest dollar F IRR 13.5% 13.8 9.3 9.2 8.7 8.2
Dyrdek Enterprises has equity with a market value of $10.9 million and the market value of debt is $3.60 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.7 percent. The new project will cost $2.22 million today and provide annual cash flows of $581,000 for the next 6 years. The company's cost of equity is 11.11 percent and the pretax cost of debt is 4.89 percent. The tax rate is 21 percent. What is the project's NPV? Multiple Choice $230,173 $375,414 $237,180 $219,241 $512,072
Dyrdek Enterprises has equity with a market value of $12.2 million and the market value of debt is $4.25 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.6 percent. The new project will cost $2.48 million today and provide annual cash flows of $646,000 for the next 6 years. The company's cost of equity is 11.63 percent and the pretax cost of debt is 5.02 percent. The tax rate is 25 percent. What is the project's NPV? a. $212,299 b. $506,561 c. $204,036 d. $366,955 e. $237,409
A start-up company Amazonian.com is considering expanding into new product markets. The expansion will require an initial investment of $160 million and is expected to generate perpetual EBIT of $40 million per year. After the initial investment, future capital expenditures are expected to equal depreciation, and no further additions to net working capital is anticipated. Amazonian.com’s existing capital structure is composed of equity with a market value of $500 million and debt with a market value of $300 million, and has 10 million shares outstanding. The unlevered cost of capital for Amazonian.com is 10%, and Amazonian.com’s debt is risk free with an interest of 4%. The expansion into the new product market will have the same business risk as Amazonian.com’s existing assets. The corporate tax rate is 35%, there are no personal taxes or costs of financial distress. a) Amazonian.com initially proposes to fund the expansion by issuing equity. If investors were not expecting this…
Tangshan Mining Company must choose its optimal capital structure. Currently, the firm has a 40 percent debt ratio and the firm expects to generate a dividend next year of $4.89 per share and dividends are grow at a constant rate of 5 percent for the foreseeable future. Stockholders currently require a 10.89 percent return on their investment. Tangshan Mining is considering changing its capital structure if it would benefit shareholders. The firm estimates that if it increases the debt ratio to 50 percent, it will increase its expected dividend to $5.24 per share. Because of the additional leverage, dividend growth is expected to increase to 6 percent and this growth will be sustained indefinitely. However, because of the added risk, the required return demanded by stockholders will increase to 11.34 percent. Determine the value per share for Tangshan Mining under both the current and proposed capital structure ?
Tangshan Mining Company must choose its optimal capital structure. Currently, the firm has a 40 percent debt ratio and the firm expects to generate a dividend next year of $4.89 per share and dividends are grow at a constant rate of 5 percent for the foreseeable future. Stockholders currently require a 10.89 percent return on their investment. Tangshan Mining is considering changing its capital structure if it would benefit shareholders. The firm estimates that if it increases the debt ratio to 50 percent, it will increase its expected dividend to $5.24 per share. Because of the additional leverage, dividend growth is expected to increase to 6 percent and this growth will be sustained indefinitely. However, because of the added risk, the required return demanded by stockholders will increase to 11.34 percent. Determine the value per share for Tangshan Mining under both the current and proposed capital structure ? A. $74.01 and $79.02 B. $67.03 and $65.51 C. $82.03 and $98.12 D.…
Atlas Corporation wants to determine the optimal level of current assets that should be kept in the next year. The company is currently undergoing expansion, after which sales are expected to increase approximately by PKR 1 million. The company wants to maintain a 40% equity ratio and its total fixed assets are of PKR 1 million. Atlas’s interest rate is currently 8% on both short-term and longer-term debt (which the firm uses in its permanent structure). The company must choose between three strategies and decide which one is better. (1) a lean and mean policy where current assets would be only 35% of projected sales, (2) a moderate policy where current assets would be 40% of sales, and (3) a lenient policy where current assets would be 50% of sales. Earnings before interest and taxes should be 10% of total sales, and the federal-plus-state tax rate is 35%. What is the expected return on equity under each current asset level? (Solved) In this problem, we assume that expected sales are…
Atlas Corporation wants to determine the optimal level of current assets that should be kept in the next year. The company is currently undergoing expansion, after which sales are expected to increase approximately by PKR 1 million. The company wants to maintain a 40% equity ratio and its total fixed assets are of PKR 1 million. Atlas’s interest rate is currently 8% on both short-term and longer-term debt (which the firm uses in its permanent structure). The company must choose between three strategies and decide which one is better. (1) a lean and mean policy where current assets would be only 35% of projected sales, (2) a moderate policy where current assets would be 40% of sales, and (3) a lenient policy where current assets would be 50% of sales. Earnings before interest and taxes should be 10% of total sales, and the federal-plus-state tax rate is 35%. What is the expected return on equity under each current asset level? In this problem, we assume that expected sales are…