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Optimal capital structure has been achieved

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The firm is evaluating a project, which has the cash flows listed in the following table. If both the discount rate and the reinvestment rate are 15%, what is the modified internal rate of return (MIRR) based on the combination approach?

Year Cash flow

0 -$290,000

1 $156,000

2 -$135,000

3 $223,000

4 $221,000

A. 6.5% B. 23.9% C. 16.2% D. 11.1%

Barred Windows LLC purchased a land for $2,000,000 four years ago. The land has been idle for a while and its current market value is $1,800,000. The effective tax rate for Barred Windows LLC is 40%. If the company decides to use this land for a new project, what value, if any, should be included in the initial cash flow of the project for this land?

The optimal capital structure has been achieved when the:

a) debt-equity ratio is equal to 1.

b) debt-equity ratio results in the lowest possible weighted average cost of capital.

c) weight of equity is equal to the weight of debt.

d) cost of equity is maximized given a pre-tax cost of debt.

e) debt-equity ratio is such that the cost of debt exceeds the cost of equity.

Reference no: EM132199185

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