What other factors might be important in your analysis

Assignment Help Finance Basics

Reference no: EM131337192

Boris' Bucket Works, Inc. (BBW) is the maker of new "easy spill" buckets. These buckets have quickly gained market share and now control 90 percent of the spillable bucket market. BBW is looking to do a product line expansion into the "spill-free" bucket market. The weighted cost of capital for BBW has been estimated to be 16 percent. BBW's beta is 1.3 and the risk-free rate is 6 percent. BBW has a capital structure composed of 40 percent debt and 60 percent equity. The marginal tax rate is 40 percent.

Using pro forma statements prepared by Boris, the expected NPV of this project is -$5 million. The most optimistic estimate of the NPV is $10 million and the most pessimistic estimate is -$20 million. By most optimistic, Boris means a value not likely to be exceeded more than 5 percent of the time. By most pessimistic, he means a value not likely to fall below more than 5 percent of the time. The distribution of NPV is assumed to be normally distributed.

a. What is the probability that this project will be acceptable to BBW, if the goal is to maximize shareholder wealth?

b. What other factors might be important in your analysis? Be specific.

Reference no: EM131337192

Questions Cloud

What is the probability that the project will be acceptable : What is the probability that this project will be acceptable?- What is the probability that this project will have an NPV in excess of $1 million?

Ethical standards for business and negotiations : Create an 8-slide Microsoft® PowerPoint® presentation in which you analyze the ethical standards for business and negotiations as this relates to your organization. Include the following in the presentation:

Contemplating purchasing new parking system : A town in Florida is contemplating purchasing a new parking system that would enhance the collection of parking fees while providing additional convenience to shoppers. The hardware requires an immediate outflow of $800. The town estimates the new sy..

Provide businesses with an affordable basic business package : Provide small businesses with an affordable basic business package. To re-establish The Rock Insurance, Inc. as the market leader in quality and value-priced insurance products in the Southeast Puget Sound district.

What other factors might be important in your analysis : What is the probability that this project will be acceptable to BBW, if the goal is to maximize shareholder wealth?- What other factors might be important in your analysis? Be specific.

Measure entrepreneurial orientation : Explain how management of Xiaomi inc can measure entrepreneurial orientation within their organisation. Critically appraise and discuss the organisation's entrepreneurial orientation.

Determine uptons self-supporting growth rate : Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Using the AFN equation, d..

What motivates them to undertake cpd activities : There were four research questions. These are as follows; What motivates them to undertake CPD activities? What strategies do they consider in enhancing your CPD activities

Compute the annual net cash flows over the 10 year : Compute the net investment required to establish the collection subsidiary.- Compute the annual net cash flows over the 10-year life of the project.

User Account

All Pages