PART III etermine whether or not the preferred stock provided at least the 16% rate of That could have been received on the money market certificate. Prove your answer. B. Compute the net pres C. Between Projects 1-4, W during the upcoming year a. No budget restrictions b. A budget of 600,000 c. A budget of 300,000 ute the net present value of the NAOSUMI project. Projects 1-4, which project(s) should STORM ARMADA Company select e upcoming year under each budgeted amount of funds be your answer in letter C if project 2 and project 3 are mutually exclusive projects? a. No budget restrictions b. A budget of 600,000 C. A budget of 300,000 Five years ago, STORM ARMADA Company purchased 600 shares of 9%. P100 par value stock for P75 per share. Sarver received dividends on the stock each year for five years, an five years, and finally sold the stock for P90 per share. Instead of preferred stock, STORM ARMADA Company could have invested money market certificate yielding a 16% rate of return. purchasing the preferred stock, STORMA the funds in a money market certific require an initial investment of P After sometime, STORM ARMADA C ARMADA Company is considering project NAOSUMI that would THIS YEAR, STORM ARMADA Company is pitial investment of P462,000 and would have a useful life of 7 years. al cash receipts would be P300,000 and the annual cash expenses would be P120.000. The salvage P120.000. The salvage value of the assets used in the project would be The company's tax rate is 30%. For tax purposes, the entire initial investment with vestment without any reduction for salvage value will be depreciated over 5 years. The co years. The company uses a discount rate of 18% for this kind of project. etime STORM ARMADA Company was able to reduce its cost of capital to 12% h is normally used as a hurdle rate for most of its capital expenditures and has ne the following analysis for four projects for the upcoming year: Project 1 Project 2 Project 3 Project 4 Initial cash outlay P200,000 P298,000 P248,000 P272.000 Annual net cash inflows Year 1 P 65,000 P100,000 P 80.000 P 95,000 Year 2 70.000 135.000 95.000 125.000 Year 3 80.000 90.000 90.000 90.000 40.000 Year 4 65.000 80.000 60.000 4,276 (3.798) 14,064 14,662 Net present value 98% 101% 106% 105% Profitability index 14% 13% 15% Internal rate of return 11% o rate of PART III Determine whether or not the preferred stock provided at least the 16% rate of on that could have been received on the money market certificate. Prove ompute the net present value of the NAOSUMI project. en Projects 1-4, which project(s) should STORM ARMADA Company select g the upcoming year under each budgeted amount of fundse your answer. B. Compute the ne C. Between Projects 1-4, W during the upcoming a. No budget restrictions b. A budget of 600,000 C. A budget of 300,000 D. What will be your an exclusive projects I be your answer in letter C if project 2 and project 3 are mutually a. No budget restrictions b. A budget of 600,000 C. A budget of 300,000
