Financial management

posted by .

evaluates investment opportunities using payback. The finance director who has been with the company since its formation in 1975, has recently heard that this method may not be the best for evaluating long term projects. You have been brought in to advise the company and have ascertained:
Share capital 25p £10m
Dept coupon 6% £50m
Market Price of Shares £2.50
Market Value of debt £90 Corporation tax rate 25%
Treasury bill rate 4%
Return from the market 14%
Company beta 1.4

a). Calculate the company WACC
b). Using the WACC calculated above, assess the following opportunities

Project LT3 YW
Initial Investment £3M £3M
Net cash inflows
Year 1 £600,000 £1m
Year 2 £700,000 £1m
Year 3 £800,000 £2m
Year 4 £900,000 £500,000
Year 5 £900,000
Year 6 £900,000
Year 7 £900,000

Using the WACC calculated to the nearest whole number you are required to calculate for reach project,its:
Net Present Value
Internal Rate of Return

c) Advice the company, with reasons, which project it should choose.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. finacne

    Problem 3: Net Present Values The table below contains information about three upcoming projects that your company is currently evaluating. As their financial analyst it is your duty to evaluate each of the three projects and help …
  2. finance

    Sunshine Corporation is considering several long-term investments. Management wants to accept the two best projects, given the following data: Project A B C D E Present value of net cash inflows . . . . . . . . $24,000 $44,000 $15,000 …
  3. Accounting

    Assume a $4000 investment and the following cash flows for two alternatives. Under the payback method, which of the following would be concluded?
  4. Intermediate Accounting 305

    You have just been hired as a consultant to Tangier Industries, a newly formed company. The company president, John Meeks, is seeking your advice as to the appropriate inventory method Tangier should use to value its inventory and …
  5. Financial Management (Math)

    2. Your firm is considering two projects: Project A and Project B with the following cash flows: A YEAR B YEAR -$75 0 -$60 0 $15 1 $20 1 $33 2 $13 2 $44 3 $15 3 $55 4 $18 4 a. Calculate the NPVs based on WACCs of 5% and 7% b. What …
  6. Fancial management

    Submit your work via My Assignments. 1. Bob’s Country Bunker (BCB), a chain of economically priced motels in the Midwestern United States has reviewed its current target structure of 40% debt and 60% equity. It can issue debt at …
  7. banking and financial services management

    The Hypothetical Finance Ltd has structured a hire-purchase deal. The required to make a down payment of 20 per cent of the investment cost. The hire-term is four years with quarterly payment in advance. The flat rate of interest is …
  8. Financial Management

    The finance department of a large corporation has evaluated a possible capital project using the NPV method, the Payback Method, and the IRR method. The analysts are puzzled, since the NPV indicated rejection, but the IRR and Payback …
  9. accounting

    By Saturday, January 5, 2013, submit the following assignment: As a financial consultant, you have contracted with Wheel Industries to evaluate their procedures involving the evaluation of long term investment opportunities. You have …

    11-16 NPV and IRR John’s Publishing Company, a new service that writes term papers for college students, provides 11-page term papers from a list of more than 500 topics. Each paper will cost $7.50 and is written by a graduate in …

More Similar Questions