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The bookstore is currently financed by 35% of debt and 65% of equity. The new project is expected to require the same capital structure
The bookstore is currently financed by 35% of debt and 65% of equity. The new project is expected to require the same capital structure or mix of debt and equity as the entire bookstore. Manuel does not feel very confident about estimating his cost of capital. Would you be able to help him? What value would you suggest for the cost of capital? Please answer each of the following questions: 1. Determine the cost of capital for the delivery service. 2. Using the preparatory work you did in week 2, compute the NPV, IRR, and payback period for the project. Should Manuel go ahead with this project? Does any of the investment profitability metrics raise any concerns? 3. Manuel does not feel very confident about his estimated cost of capital. Given your calculations for part d), how would you be able to reassure him? Assignment Structure Your assignment will be an Excel spreadsheet clearly showing your answers to the questions below (three main questions, with each question subdivided into parts). For Question 1 (25% of your grade): A. Determine the cost of capital for the delivery service. B. Make sure to show your work for how you calculated this. For Question 2 (50% of your grade): A. Compute the NPV, IRR, and payback period for the project - calculate each. B. Should Manuel go ahead with this project? Write your recommendation (paragraph, using a cell in the Excel sheet and clearly label it as your answer to Question 2B) with your explanation for what your suggestion is for Manuel as far as going ahead with the project. For Question 3 (25% of your grade): A. Manuel does not feel very confident about his estimated cost of capital. Given your calculations for Question 1, how would you be able to reassure him? Write your recommendation (paragraph, using a cell in the Excel sheet and clearly label it as your answer to Question 3A) explaining your thought process.
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