Post on 14-Apr-2018
7/30/2019 Ch. 11 Financial Mgmt Hw
1/22
1
No,it is not following a logical approach to using cost of capital because each indivuual proj
5
Kd = Yield (1-T)
Yield (1-T)
a. 6.0% (1-.16)
b. 12.6% (1-.35
c 9.4% (1-.24)
6
Kd= Yield (1-T)
Yield (1-T)
a. 8.00% (1-.28)
b. 11.40% (1-.40)
c. 7.50% (1-0)
9
a 78+(1000-875)/25/.6*875+4*1000
8.97%
b. Kd= Yield (1-T)
8.97% (1-.30)
8.97% (.70)
6.28%
11
a Kd= Yield (1-T)
11.40% (1-.35)
11.40%(.65)
7.41%
b down because the larger tax deduction offsets the higher rate
13
a. 7.79%
b. No we do not need to make a tax adjustment.
16
a. 13%
b 13.29%
18
7/30/2019 Ch. 11 Financial Mgmt Hw
2/22
a. 1.87 (n=6) g=11%
b. 2.08$
c. 0.83$
d. 15.61%
19
After tax Cos
Debt (Kd) 7.00%
Preferred stock (Kp) 10
Common equity (Ke) (retained earnings)
Weighted average cost of capital (Ka) 13
23
10% (1-.34)
10%(.66)
6.60%
9.11%
11%
Cost (aftertax
Debt (Kd) 6.60%
Preferred stock (Kp) 9.11Common equity (Ke) (retained earnings)
Weighted average cost of capital (Ka) 11
Ch.12
1
100000
5000050000
15000
35000
50000
85000
7/30/2019 Ch. 11 Financial Mgmt Hw
3/22
3
a. 500000
0
500000
200000
300000
0
cashflow 300000
b.
500000
500000
0
0
0
500000
cashflow 500000
c.
200000
6 X
200000-60000 1
140000-90000 2
50000-50000 3
7
A
50000-10000 1
40000-11000 2
29000-13000 3
16000-16000 4
10a.
b. A B
11011 13031
10000 10000
Net Present 1011 3031
They will go with x because they are going to get paid bac
They will go with B because they are going to get paid bac
Pick Project A for shorter paying period.
Choose B, it has the highest net present value.
7/30/2019 Ch. 11 Financial Mgmt Hw
4/22
c. A company should normally have more confidence with B because the net pre
12
PVIFA 4.623
IRR 0.08
N 6
14
Sum of Prese 167109
Sum of Prese 160000
Net present 7109
15
Sum of Prese 97355
Sum of Prese 101265
Net present -3910
No, it is negative.
18
a.
Sum of Prese 58865
Sum of Prese 45000
Net present 13865Yes
b.
24.60%
c.
20
a.
1 14120
2 155403 19008
4 21800
5 24000
Total 94468
b.
1 16890
Dont buy the machine. It has a return less than 12
Since the net present value is positive, they should
Since the net present value is positive, they should go through wi
7/30/2019 Ch. 11 Financial Mgmt Hw
5/22
2 17784
3 20800
4 22800
5 24000
Total 102274
c.
PVIF 0.654545455
23
a.
8000 for project E
5000 for project H
b. Prject E
Sum of Prese 22121
Sum of Prese 20000
Net present 2121
Project H
Sum of Prese 21970
Sum of Prese 20000
Net present 1970
d.
e.1 6% cost of capital Project E
2 13% cost of capital Project H
3 Neither
27
26640
35600
11840
5920
80000Sum of Prese 87977
Sum of Prese 80000
Net present 7977
33
a.
No, but the looking at the net present value makes it loo
Appendix B used for 3. with about 15 percent.
Both project with have positive net present value but Project E is better tha
7/30/2019 Ch. 11 Financial Mgmt Hw
6/22
Purchase Pric 60000
Depreciation 31200
Book Value 28800
b.
Book Value 28800
Sales Price 23800
5000
c.
tax loss 5000
Tax 0.35
1750
d.
23800
1750
25550
e.
150000
25550
124450
f.
1 30000
2 48000
3 28800
4 17250
5 172506 8700
7 150000
g.
1 11520
2 6900
3 6900
4 3480
h.
1 64682 14385
3 7665
4 4819
5 6038
6 3045
i.
7/30/2019 Ch. 11 Financial Mgmt Hw
7/22
1 37050
2 31850
3 30550
4 29250
5 27300
6 20150
j.
1 38862
2 36849
3 27209
4 21668
5 18903
6 11760
155251
k.
Sum of Prese 155251
Sum of Prese 124450
Net present 30801
7/30/2019 Ch. 11 Financial Mgmt Hw
8/22
ct shoud not be judged against the means of financing that project. Instead it should be measur
Yield (1-T)
5.04%
8.19%
7.14%
Yield (1-T)
5.76%
6.84%
7.50%
7/30/2019 Ch. 11 Financial Mgmt Hw
9/22
Weights Weighted Cost
35% 44.4500%
15 1.5
50 6.5
10.45%
) Weighted Cost
Weights
30% 1.98%
10 0.91
60 6.6
9.49%
7/30/2019 Ch. 11 Financial Mgmt Hw
10/22
Y
200000-4000 1
160000-7000 2
90000-80000 3
10000/20000 4
B
50000-20000 1
30000-25000 2
5000-15000 0.33
faster.
faster.
7/30/2019 Ch. 11 Financial Mgmt Hw
11/22
sent value is going to consider all of the inflows and the time value of the money.
o through with the project.
th the project.
7/30/2019 Ch. 11 Financial Mgmt Hw
12/22
like a safer choice.
Project H.
7/30/2019 Ch. 11 Financial Mgmt Hw
13/22
7/30/2019 Ch. 11 Financial Mgmt Hw
14/22
7/30/2019 Ch. 11 Financial Mgmt Hw
15/22
ed against the weighted average cost of paying for all projects. And finally when you get the fina
7/30/2019 Ch. 11 Financial Mgmt Hw
16/22
7/30/2019 Ch. 11 Financial Mgmt Hw
17/22
7/30/2019 Ch. 11 Financial Mgmt Hw
18/22
7/30/2019 Ch. 11 Financial Mgmt Hw
19/22
7/30/2019 Ch. 11 Financial Mgmt Hw
20/22
7/30/2019 Ch. 11 Financial Mgmt Hw
21/22
7/30/2019 Ch. 11 Financial Mgmt Hw
22/22
l overall cost, the heating compound that yeilded 14% is more likely to be accepted.