Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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 % Project Y % Which project has the higher MIRR? X or Y

-----------

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

  1. What is the regular payback period for each of the projects? Round your answers to two decimal places. Project A years Project B years
  2. What is the discounted payback period for each of the projects? Round your answers to two decimal places. Project A years Project B years
  3. 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
  4. 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
  5. 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
  6. What is the crossover rate? Round your answer to two decimal places. %
  7. 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 % Project B %
----------

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.

%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions