Expected return higher than companys overall cost of capital

Assignment Help Financial Management

Reference no: EM13917222

An all-equity firm is considering the following projects:

Project: W Beta 0.80 IRR 9.4% ; X Beta 0.95 ,IRR 10.9% ; Y Beta 1.15, IRR13.0% ; Z Beta 1.45 , IRR 14.2% ; The T-Bill rate is 3.5% and the expected return on the market is 11%.

a) The company has an overall cost of capital of 11%. Which of these projects have an expected return higher than the company’s overall cost of capital?

b) Which projects should be accepted?

c) Which projects would be incorrectly accepted or rejected is the firm’s overall cost of capital were used as a hurdle rate?

Reference no: EM13917222

Questions Cloud

The companys debt ratio be if the equipment were leased : Reynolds Construction needs a piece of equipment that costs $200. Reynolds can either lease the equipment or borrow $200 from a local bank and buy the equipment. If the equipment is leased, the lease would not have to be capitalized. Would the compan..

What is the price today for delicious mills bond : 7 years ago, Delicious Mills, Inc. issued 30-year to maturity bonds that had a 10.17 percent annual coupon rate, paid semiannually. The bonds had a $1,000 face value. Since then, interest rates in general have changed and the yield to maturity on the..

Calculate the bonds price today : For a bond selling for $696, with a par value of $1000 and a coupon rate of 5.57 percent, the current yield is? General Mills has a $1,000 par value, 13-year to maturity bond outstanding with an annual coupon rate of 8.40 percent per year, paid semia..

Evaluating the merits of leasing versus purchasing truck : Delmont Transport Company (DTC) is evaluating the merits of leasing versus purchasing a truck with a 4-year life that costs $40,000 and falls into the MACRS 3-year class. What is the net advantage to leasing?

Expected return higher than companys overall cost of capital : Project: W Beta 0.80 IRR 9.4% ; X Beta 0.95 ,IRR 10.9% ; Y Beta 1.15, IRR13.0% ; Z Beta 1.45 , IRR 14.2% ; The T-Bill rate is 3.5% and the expected return on the market is 11%. The company has an overall cost of capital of 11%. Which of these project..

Estimate of the maximum share price for the purchase : Happy Times, Inc. wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering purchasing a privately-held firm called Joe’s Party Supply. If the appropriate multiple is 8, w..

Company can borrow from its bank at prime plus : XYZ wants to buy a new production machine for $20,000. Projected cash flows (already adjusted) from this investment will be 5,000; 4,000; 6,000; 6,000, and 6,000. The residual value of the machine is 500$, and t he company will receive the IRS ITC fo..

The two different tranches have different flotation costs : Let’s suppose that a firm issues two tranches (“series”) of bonds, in addition to preferred stock and retained earnings. It has so much retained earnings that it does not have to issue new equity. However, the two different tranches have different fl..

Calculate the cost of capital for a company : You have been asked to calculate the cost of capital for a company with the following information. The company has $7,500,000 in face value bonds, trading at 96.5% of face value. The YTM on these bonds is 5.75%. Given this information, what is the es..

User Account

All Pages