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Speedy Delivery Systems can buy a piece of equipment that should provide an 6 percent return

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Question;-Speedy Delivery Systems can buy a piece;of equipment that should provide an 6 percent return and can be financed at 3;percent with debt. The CEO likes earning more than the cost of debt, and he;thinks this would be a good deal. The firm can also buy a machine that would;yield a 14 percent return but would cost 16 percent to finance through common;equity. Earning less than the cost of equity sounds bad to the CEO. Assume;debt and common equity each represent 50 percent of the firm?s capital;structure.;(a);Compute the weighted average cost of;capital. (Round your intermediate and final answers to 1 decimal place.;Omit the "%" sign in your response.);Weighted average cost of;capital;%;(b);Which project(s) should be accepted?;Piece of equipment should be financed.;New machine should be financed.;-United Business Forms? capital structure;is as follows;Debt;35;%;Preferred stock;30;Common equity;35;The aftertax cost of debt is 10 percent;the cost of preferred stock is 13 percent, and the cost of common equity (in;the form of retained earnings) is 16 percent.;Calculate United Business Forms? weighted;cost of each source of capital and the weighted average cost of capital. (Round;your answers to 2 decimal places. Omit the "%" sign in your;response.);Weighted cost;Debt (Kd);%;Preferred stock (Kp);Common equity (Ke);Weighted average cost of;capital (Ka);%;-Assume a $260,000 investment and the;following cash flows for two products;Year;Product X;Product Y;1;$;90,000;$;80,000;2;80,000;70,000;3;80,000;50,000;4;40,000;80,000;(a);Calculate the payback for products X and;Y. (Round your answers to 2 decimal places.);Payback period;Product X;years;Product Y;years;(b);Which alternative would you select under;the payback method?;Product X;Product Y;-Hamilton Control Systems will invest;$99,000 in a temporary project that will generate the following cash inflows;for the next three years. Use Appendix B.;Year;Cash flow;1;$;37,000;2;34,000;3;95,000;The firm will also be required to spend;$18,000 to close down the project at the end of the three years.;(a);Compute the net present value if the cost;of capital is 11 percent. (Round "PV Factor" to 3 decimal;places. Round your answer to the nearest dollar amount. Negative amount;should be indicated by a minus sign. Omit the "$" sign in your;response.);Net present value;$;(b);Should the investment be undertaken?;No;Yes;-Diaz Camera Company is considering two;investments, both of which cost $30,000. The cash flows are as follows;Use Appendix B.;Year;Project A;Project B;1;$;15,000;$;14,000;2;15,000;14,000;3;6,000;11,000;(a-1);Calculate the payback period for project;A and project B. (Round your answers to 2 decimal places.);Payback period;Project A;years;Project B;years;(a-2);Which of the two projects should be;chosen based on the payback method?;Project A;Project B;(b-1);Calculate the net present value for;project A and project B. Assume a cost of capital of 8 percent. (Round;PV Factor" to 3 decimal places, intermediate and final answers to;the nearest dollar amount. Omit the "$" sign in your response.);Net present value;Project A;$;Project B;$;(b-2);Which of the two projects should be;chosen based on the net present value method?;Project B;Project A;(c);Should a firm normally have more;confidence in answer derived based on Net present value method or Payback;method?;Payback method;Net present value method;-King?s Department Store is contemplating;the purchase of a new machine at a cost of $28,552. The machine will provide;$4,600 per year in cash flow for 11 years. King?s has a cost of capital of 9;percent. Use Appendix D.;(a);What is the internal rate of return? (Round;PV Factor" to 3 decimal places. Round your answer to the nearest;whole percent. Omit the "%" sign in your response.);Internal rate of return;%;(b);Should the project be undertaken?;No;Yes;-Wildcat Oil Company was set up to take;large risks and is willing to take the greatest risk possible. Richmond;Construction Company is more typical of the average corporation and is;risk-averse.;Projects;Returns;Expected value;Standard;deviation;A;$;320,000;$;149,000;B;693,000;435,000;C;187,000;152,000;D;145,000;234,000;(a-1);Compute the coefficients of variation. (Round;your answers to 3 decimal places.);Coefficient of;variation;Project A;Project B;Project C;Project D;(a-2);Which of the following four projects;should Wildcat Oil Company choose?;Project A;Project B;Project C;Project D;(b);Which one of the four projects should;Richmond Construction Company choose based on the same criteria of using the;coefficient of variation?;Project A;Project B;Project C;Project D

 

Paper#38313 | Written in 18-Jul-2015

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