What is the optimal capital budget

Assignment Help Financial Management
Reference no: EM13895402

A firm has a WACC of 10% until it has raised $100 million. Beyond that the WACC is 12%. The firm has the following projects and associated costs: Project A has a cost of $50 million and an IRR of 14%; project B has a cost of $70 million and an IRR of 16%; and project C has a cost of $35 million and an IRR of 6%. What is the Optimal Capital Budget?

Reference no: EM13895402

Questions Cloud

Interest tax shields are discounted at pre-tax cost of debt : Folgers Air Transport (FAT) is currently an unlevered firm. It is considering a capital restructuring to allow $200 in perpetual debt. The company expects to generate perpetual EBIT of $151.52. Compute the value of FAT after the restructuring. Ignore..
The equivalent annual cost method is most appropriate : The equivalent annual cost method is most appropriate in which of the following situations? In each case, assume that several mutually exclusive options are available. If a project has a profitability index greater than 1,
What must the coupon rate be on the bonds : Volbeat Corporation has bonds on the market with 18 years to maturity, a YTM of 10.9 percent, and a current price of $939. The bonds make semiannual payments. What must the coupon rate be on the bonds?
What is the proportion of equity in capital structure : Jack’s Construction Co. (JCC) has 80,000 bonds outstanding that are currently selling at par (face) value. Bonds with similar characteristics are currently yielding 8.5%. The company also has 4 million shares of common stock outstanding. What is the ..
What is the optimal capital budget : A firm has a WACC of 10% until it has raised $100 million. Beyond that the WACC is 12%. The firm has the following projects and associated costs: Project A has a cost of $50 million and an IRR of 14%; project B has a cost of $70 million and an IRR of..
Balance sheet equity-what is the target stock price : Fly Away, Inc., has balance sheet equity of $5.7 million. At the same time, the income statement shows net income of $843,600. The company paid dividends of $459,762 and has 120,000 shares of stock outstanding. If the benchmark PE ratio is 21, what i..
Raise funds-what is its self-supporting growth rate : Maggie's Muffins, Inc., generated $4,000,000 in sales during 2015, and its year-end total assets were $2,600,000. Also, at year-end 2015, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
Do the different policies provide an incentive to be safer : You own a house worth $400,000 that is located on a river. If the river floods moderately, the house will be completely destroyed. This happens about once every 50 years. If you build a seawall, the river would have to flood heavily to destroy your h..
Portfolio of stocks worth-what position should company take : It is July 16. A company has a portfolio of stocks worth $100 million. The beta of the portfolio is 1.2. The company would like to use the CME December futures contract on the S&P 500 to change the beta of the portfolio to 0.5 during the period July ..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the accumulated sum of the stream of payments

What is the accumulated sum of the following stream of payments? $1,831 every year at the end of the year for 5 years at 7 percent, compounded annually.

  What is the pre-tax cost of debt for the newly-issued bonds

Crandal Dockworks is undergoing a major expansion. The expansion will be financed by issuing new 15-year, $1,000 par, 9% annual coupon bonds. The market price of the bonds is $1,070 each. Crandal's flotation expense on the new bonds will be $50 per b..

  Assume that all cash flows except initial investments

The city of Middleville is considering offering public bus service. Setting up the service will cost the city $1.4M (where M stands for million). The useful life of the buses is 18 years. Annual maintenance of the buses would cost $120,000 per year a..

  What is the current value of the lease

Your car dealer is willing to lease you a new car for $399 a month for 60 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 5.0 percent, what is the current value of th..

  Compare the opportunities and risk profiles of the two banks

Two competing commercial banks situated in the same community have comparable asset portfolios, but one operates with a total capital ratio of 10 percent, while the other operates with a ratio of 12 percent. Compare the opportunities and risk profile..

  Planning to save for retirement

You are planning to save for retirement over the next 25 years. To do this, you will invest $790 a month in a stock account and $390 a month in a bond account. The return of the stock account is expected to be 9.9 percent, and the bond account will p..

  The discussion board db is part of the core of online

the discussion board db is part of the core of online learning. classroom discussion in an online environment requires

  Calculate the cost of derivative

Assume the Black-Schools framework. Let S be a stock such that S(0) = 10, and the dividend rate is 4% compounded continuously. Let C be a derivative that pays 100S(2)^(−1 )two years from now. In addition, the risk free rate is r = 0.11, and the volat..

  What is his portfolios beta

Troy has a 2-stock portfolio with a total value of $100,000. $37,500 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio’s beta?

  Explain organisations benchmarking efforts

Explain this organisations benchmarking efforts (or lack thereof). If benchmarking is employed, identify how the currently used benchmarks align with or address international standards.

  Mutual life insurance has a risk-based capital ratio

Ashley is an actuary who is employed by the Nebraska Department of Insurance. Her duties include monitoring the financial position of insurance companies doing business in Nebraska. Based on an analysis of annual financial statements that insurers ar..

  Equipment to produce cash flows

Kingston, Inc. management is considering purchasing a new machine at a cost of $4,129,832. They expect this equipment to produce cash flows of $821,407, $841,261, $853,835, $1,065,425, $1,134,239, and $1,296,663 over the next six years. If the approp..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd