The Cost of Capital And The Basics of Capital Budgeting: Evaluating Cash Flows
Instruction: Please submit your assignment as an attachment
to my Blackboard email by midnight on the due date
PLEASE USE EXCEL TO SOLVE ALL PROBLEMS
Problem 1
You are employed by ABC Inc. Your boss has asked you to estimate the weighted average cost of capital
for the company. Following are balance sheets and some information about CGT.
Assets
Current assets $30,000,000
Net plant, property, and equipment $100,000,000
Total Assets $130,000,000
Liabilities and Equity
Accounts payable $10,000,000
Accruals $10,000,000
Current liabilities $20,000,000
Long term debt (40,000 bonds, $1,000 face value) $40,000,000
Total liabilities $60,000,000
Preferred Stock (100,000 shares, $100 face value) $10,000,000
Common Stock (10,000,000 shares) $30,000,000
Retained Earnings $30,000,000
Total shareholders equity $70,000,000
Total liabilities and shareholders equity $130,000,000
You check The Wall Street Journal and see that ABC stock is currently selling for $10.00 per share and that
ABC bonds are selling for $1100.0 per bond. These bonds have a 7 percent coupon rate, with semi-annual
payments. The bonds mature in twelve years. The preferred stock has an unlimited life and pays an 5
percent annual coupon. The preferred stock sells for $95. The beta for your company is approximately
equal to 2. The yield on a 20-year Treasury bond is 4.0 percent. The expected return on the stock market is
8.0 percent. ABC is in the 40 percent tax bracket.
2. Davis Corporation is faced with two independent investment opportunities. The
corporation has an investment policy which requires acceptable projects to
recover all costs within 3 years. The cost of capital is 10 percent. The cash flows
for the two projects are:
Project A Project B
Year Cash Flow Cash Flow
0 -$120,000 -$90,000
1 42,000 30,000
2 43,000 30,000
3 44,000 30,000
4 45,000 30,000
5 46,000 30,000
Which investment project(s) does the company invest in using the:
1)Payback period rule
2)Discounted payback period rule
3)NPV
4)IRR
3. XYZ Corporation is faced with two mutually exclusive investment opportunities.
The cost of capital is 12 percent. The cash flows for the two projects are:
Project A Project B
Year Cash Flow Cash Flow
0 -$140,000 -$100,000
1 60,000 30,000
2 60,000 30,000
3 60,000 30,000
4 30,000
5 30,000
6 30,000
Which investment project should the company invest in using the:
1.Equivalent annual annuity approach
2.The replacement approach
Please name this file as:
Assignment 6 first_name last_name.doc
If you have any questions, feel free to contact me.
Quality Researched Papers
We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.
Qualified Writers
We have hired a team of professional writers experienced in academic and business writing. Most of them are native speakers and PhD holders able to take care of any assignment you need help with.
Unlimited Revisions
If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account.
Prompt Delivery
All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. We will always strive to deliver on time.
Original & Confidential
We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text.
24/7 Customer Support
Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
If you are looking for exceptional academic writing services, then you are in the right place. Studyacer offers customised academic assignments and academic papers for students at all levels.
Essays
Writing an essay can be a challenge. However, we know what every student needs. And we purpose to deliver. Here at StudyAcer, we do all we can to help with academic essays and assignments. We have a dedicated team of professional essay writers.
Assignment
We understand students need satisfactory results. Our cheap assignment writing service helps and never leaves any doubt. We always strive to ensure the ultimate and best results. It is our joy to offer a cheap reliable essay writing service.
Term paper
Have you been asking yourself, where can get a pre written research papers for sale? Worry no more, the fact that you have a term paper that is due tonight and you haven’t touched it. At Study Acer it is our responsibility to get your paper on time.
Dissertation
Several master’s students seek professional help with their thesis.Students from different parts of the world experience different challenges. Dissertations have different stages and the challenges are different too. Do not struggle in silence, order now .