Which project should the firm choose if the cost of capital

Assignment Help Financial Management
Reference no: EM13942929

Consider the following projects, X and Y where the firm can only choose one. Project X costs $600 and has cash flows of $400 in each of the next 2 years. Project Y also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respectively. Sketch a net present value profile for each of these projects. Which project should the firm choose if the cost of capital is 10 percent? Show all work.

Reference no: EM13942929

Questions Cloud

Expects non normal dividend growth over the next three years : Louis incorporated expects non normal dividend growth over the next three years; that is a 10% growth rate in the first year, then 20%, and then 25% followed by growth of 5% thereafter. If the last dividend paid was $.25 and the appropriate discount ..
What is the bonds price : ABC Company's bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65. The market requires an interest rate of 7.5% on these bonds. What is the bond's price?
Currently the risk free rate and market premium : Currently the risk free rate is 1% and the market premium is 3%. Given this information, which of the following statements is correct?
What rate of return is built into the annuity : Suppose you just won the state lottery, and you have a choice between receiving $2,075,000 today or a 15-year annuity of $300,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.
Which project should the firm choose if the cost of capital : Consider the following projects, X and Y where the firm can only choose one. Project X costs $600 and has cash flows of $400 in each of the next 2 years. Project Y also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respe..
Indicates a project should be accepted : Which one of the following indicates a project should be accepted?
Currently has an operating cycle : Center Enterprises currently has an operating cycle of 58 days. You are analyzing some operational changes which are expected to increase the accounts receivable period by 4 days and decrease the inventory period by 3 days. The accounts payable turno..
Operating and cash cycles of the firm different : How are the operating and cash cycles of the firm different? Why are they important? Why is liquidity important? What strategies can a firm use to optimize its cash cycle? Discuss different forms of A/R acceleration.
What is the required rate of return on stock : Stock A has a beta of 1.30, and its required return is 13.25%. Stock B's beta is 0.90. If the risk-free rate is 4.75%, what is the required rate of return on B's stock? (Hint: First find the market risk premium.)

Reviews

Write a Review

Financial Management Questions & Answers

  Observe that a company has entered into futures contracts

You observe that a company has entered into futures contracts where the company is obligated to sell more of the commodity it produces than the volume they actually expect to produce. How might this be justified? What if instead you observed that a c..

  What is the extended due date for the return

Mr. and Mrs. Boyd Knevel use a fiscal year ending July 31 as the taxable year for filing their joint Form 1040. a. What is the last date on which the Knevels can apply for an automatic extension of time to file their return for fiscal year ending J..

  About the account balances

A firm has the following account balances. Which one of the following statements is correct concerning those balances? Accounts Receivable is a $900 source of cash. Long-term debt is a $5,800 source of cash.

  The risk free rate problem

Suppose the risk free rate is 5%, and the risk premium is 8%, and a stock has a beta of 1.5. If the stock market is down 10% for a given year, we would expect the stock to be:

  How much more is nancys cash flow worth

Mary is going to receive a 30-year annuity of $10,500. Nancy is going to receive perpetuity of $10,500. If the appropriate interest rate is 7 percent, how much more is Nancy’s cash flow worth?

  Heavy use of off-balance sheet lease financing will tend to

In the lease versus buy decision, leasing is often preferable

  What does the term interest rate inversion

What does the term "INTEREST RATE INVERSION" refer to? For the past several years, the Federal Reserve System has forced short-term interest rates to nearly zero. Why has it not been able to do the same for long-term interest rates? Explain.

  What is the profitability index of the investment

You are offered an investment with returns of $ 1,211 in year 1, $ 4,785 in year 2, and $ 5,756 in year 3. The investment will cost you $ 6,129 today. If the appropriate Cost of Capital (quoted interest rate) is 9.4 %, what is the Profitability Index..

  Commodity price changes and labor costs

An example of diversifiable risk that a financial manager should ignore when analyzing a project's risk would include: Commodity price changes, Labor costs, Overall stock price fluctuations

  Relationship in financial information-financial condition

Explain the relationship between financial information and the financial condition of an organization. In other words, why are financial ratios and financial statements used to evaluate the health of an organization?

  Determine the enterprise value for the company

The Thibodeaux Crawfish Company wants to determine its value multiple. They are estimating a 3 year high-growth period with a starting sales level of $1,250, EBIT of $500, depreciation of $75, tax rate of 35%, and capital invested of $700. Using this..

  Discuss the particular interest rate risk each bank faces

Bank A has $100 million of mortgages with an adjustable rate of HIBOR + 2%. These assets are financed with $100 million of fixed-rate deposits costing 5%. Bank B has $100 million investment of fixed-income notes with a fixed rate of 7%, which are fin..

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