One month after joining the working group of your company's investment department, planning for 2021began and you are in the work group. You've got six projects in front of you. There's no way you're going to make it all work. The company's liabilities are generally as follows

Question1: What is the capital structure of the company?Your goal is not to change the capital structure of the company. In 2021, you expect to haveadditional40,000 TL through retained earnings.

Question2: How much additional borrowing limit do you have in this case? How much total capital can you invest in total?

The cash flows of the 6 projects put in front of you are as follows

Your capital to investis limited to 120.000. You want to determine which projects will be investment candidates according to the profitability index. They provide the following information for discount rate calculation.You plan to issue 5-yearbond with no coupon payment if you choose debt financing. Currently, similar government bond market price is 681TRY.Companies similar to our company pay5% premium above the government rate for bond financing.Corporatetax rate is 22%.We estimate that the cost of issuance will increase the cost of bonds before tax by 0.2%.

Question 3: What will the net bond cost be in this case?

Question 4: "How much does bond debt cost after tax?"Maximum amount you could borrow through bond market is 50,000TRY. The rest of the debt will be acquiredfrom the more expensive bank channel. The bank you work for will give you the rest of the debt you need at a 8% premiumabove the government bond rate. There is no flotation cost.

Question 5: How much is the after-tax cost of the capital that the bank will give?

You don't plan to sell stocks. Therefore, it is impossible to use the dividend discountmodel. You plan to calculate cost of equity with the CapitalAsset Pricing Model. The stock marketindex was 1050 a year ago and 1260 right now. Beta of corporations likeyour company is 1,2.

Question 6 : Calculate your cost of equity.

Question 7 : Calculate 2 marginal WACC. (2 of them)

Question 8 : Now you can calculate the profitability indices of the above projects. Calculate profitability indices using the lower of thetwo marginal weighted capital costs you have calculated.

Question 9: Which project combinationcan you choose based on the total capital you will invest.?

Question 10: Determine which projects you would selectafter superimposing theMarginal WACC and IRR of the projects on a figure and conduct capital rationing.

STAGE TWO

Among the projects you choose will undoubtedly be project number 5. The above data is ultimately annual net cash flow for that year.

Later you receive additional information regarding the project which requires revaluation. You want to reconsider your calculations according to the following scenario.There's an old machine that's sold. The book value is zero. Sell the old machine for 14,000 TL.If you do not make the expected investment of TL 5,000 inNet Working capitalbut spread it evenly over 5 years instead.What will happen to the new NSD in light of the Marginal ASM you calculated above (use the first of two).

THIRD STAGE

After seeing the cash inflow of TL 30,000 in the firstyear you expect above and the cash inflow of TL 20,000 in the second year, with an additional investment of TL 10,000,in year 2 you will probably provide an additional cash inflow of TL 6,000 each of the 3 remaining year with an additional investment of TL 6,000 each year, and an additional cash inflow of TL 4,000 each year with a 40% probability. In this case, what happens to the overall NSD of the project.

40.000 80.000 LIABILITIES AND SHRHOLDERS EQUI. SHORT-TERM LIABILITIES LONG TERM LIABILITIES Equity COMMON STOCK RETAINED EARNINGS TOTAL 10.000 30.000 160.000 T 1 2 3 4 5 6 0 -30.000 -40.000 -50.000 -50.000 -40.000 -20.000 1 8000 15000 20000 -5000 30000 8000 2 10000 15000 25000 12000 20000 10000 10000 15000 25000 24000 15000 10000 4 12000 15000 27000 30000 10000 10000 5 12000 15000 20000 40000 5000 -8000 5 -40,000 30000 20000 15000 10000 5000