Question
Outlay IRR project A $20,000,000 16% project B $20,000,000 15% project C $10,000,000 14% project D $10,000,000 13% project E $10,000,000 12% Upsilon Ltd has
| Outlay | IRR | |
| project A | $20,000,000 | 16% |
| project B | $20,000,000 | 15% |
| project C | $10,000,000 | 14% |
| project D | $10,000,000 | 13% |
| project E | $10,000,000 | 12% |
Upsilon Ltd has the (independent) investment opportunities indicated above:
The optimal capital structure calls for financing all projects with 60% ordinary equity and 40% debt. The most recent dividend (D0) was $0.60. The growth rate of earnings and dividends is 6% per year. The current price of share is $6. The company has bonds that were issued with a coupon rate of 11% and a yield to maturity of 13%. The company's dividend payout ratio is 25%, and it is in a 36% tax bracket. Upsilon Ltd earned $20 million last year after taxes (a) Calculate Upsilon Ltd's WACC (b)Which projects will Upsilon undertake? Why? (c)What will Upsilon's total capital budget be? (d)Answer in words only: (1) If your were senior management of the firm and Upsilon had only $4,000,000 for projects, what would the optimal capital budget be? (2) If you were a divisional manager and all these projects were in your division and Upsilon had only $4,000,000 for projects, what would your response be?
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Fundamentals Of Health Care Financial Management
Authors: Steven Berger
4th Edition
1118801687, 978-1118801680
