Compute net present value-internal rate of return of project

Assignment Help Financial Management

Reference no: EM13880172

1. Determine the new target weighted average cost of capital for Felicia & Fred, given following assumptions:

Weights of 70% debt and 30% common equity (no preferred equity); this essentially reverses their previously calculated capital structure

A 35% tax rate

The cost of debt is now 10% due to an additional default risk premium

The beta of the company is 1.3

The risk free rate is 2%

The return on the market is 12%.

Use the CAPM for calculation of the cost of equity.

2. Calculate the cash flows for the new crystal jewellery project given the following assumptions:

Initial investment outlay of $25 million, comprised of $20 million for machinery with $2 million for net working capital for metal inventory and $3 million for crystals

Project and equipment life is 5 years

Revenues are expected to increase $25 million annually

Gross margin percentage is 40% (not including depreciation)

Depreciation is computed at the straight-line rate for tax purposes

Selling, general, and administrative expenses are 5% of sales

Tax rate is 35%

Compute net present value and internal rate of return of the project.

Reference no: EM13880172

Questions Cloud

Explain why managed care was implemented : Explain why managed care was implemented, and how it has impacted health care costs

Provide a brief description of the problem : Provide a brief description of the problem/issue you propose to investigate. Give your reasons for choosing this area for your investigation - as to why do you think this is something important to be investigated.

Determine the value of the stock : The French Thaler and Company’s stock has paid dividends of $1.60 over the past 12 months. Its historical growth rate of dividends has been 8 percent but analysts expect the growth to slow to 5 percent annually for the foreseeable future. Determine t..

Explain the key contributing factors that you believe : Explain the key contributing factors that you believe led to bullying behaviors.

Compute net present value-internal rate of return of project : Determine the new target weighted average cost of capital for Felicia & Fred, given following assumptions: Weights of 70% debt and 30% common equity (no preferred equity); this essentially reverses their previously calculated capital structure. Calcu..

Determine the amount of the projected benefit obligation : 1.On January 1, 2013, Burleson Corporation's projected benefit obligation was $30 million.

What value capacitor is needed : 3. For the circuit shown, calculate (see attachment for circuit) a. The input resistanceat the base of the transistor. b. Theinput resistance of the amplifier

What would be bobby browns monthly payment under this loan : Bobby Brown decides to buy a Nissan Maxima. After paying a down payment and taxes, Bobby Brown can finance the rest of the purchase price with a loan of $27,000 for 60 months at a special finance rate offered by Nissan: 0.9% APR compounded monthly. W..

Which of the eight contracts is optimal : With three issues (two outcomes each), there are eight possible contracts. Which contracts are inefficient (i.e., produce worse outcomes for both sides than some other contract)?

User Account

All Pages