Question
Hi! There are three sections to this. Please help, answer and explain how you did the work! Thanks :) MIRR and NPV Your company is
Hi! There are three sections to this. Please help, answer and explain how you did the work! Thanks :)
MIRR and NPV
Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below:
Year | X | Y | ||
0 | -$5,000 | -$5,000 | ||
1 | 1000 | 4,500 | ||
2 | 1500 | 1500 | ||
3 | 2000 | 1000 | ||
4 | 4000 | 500 |
The projects are equally risky, and their cost of capital is 14%. You must make a recommendation, and you must base it on the modified IRR (MIRR). Calculate the two projects' MIRRs. Round your answers to two decimal places. Project X
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Payback, NPV, and MIRR
Your division is considering two investment projects, each of which requires an up-front expenditure of $28 million. You estimate that the cost of capital is 9% and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year | Project A | Project B |
1 | 5 | 20 |
2 | 10 | 10 |
3 | 15 | 8 |
4 | 20 | 6 |
- What is the regular payback period for each of the projects? Round your answers to two decimal places. Project A
- What is the discounted payback period for each of the projects? Round your answers to two decimal places. Project A
- If the two projects are independent and the cost of capital is 9%, which project or projects should the firm undertake? Project A, Project B, or Both
- If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? Project A, Project B, or Both
- If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? Project A or Project B
- What is the crossover rate? Round your answer to two decimal places.
- If the cost of capital is 9%, what is the modified IRR (MIRR) of each project? Round your answers to two decimal places. Project A
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Bond Yield and After-Tax Cost of Debt
A company's 7% coupon rate, semiannual payment, $1,000 par value bond that matures in 20 years sells at a price of $698.44. The company's federal-plus-state tax rate is 30%. What is the firm's after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.) Round your answer to two decimal places.
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