Question;Discussion;1;From a financial manager's;perspective, discuss the capital-budgeting process used to identify projects;that add to the firm's value? How do capital-budgeting decisions help to define;a firm's strategic direction?;Discussion;2;When two mutually exclusive projects are;being compared, explain why the short-term project might be higher ranked under;the NPV criterion if the cost of capital is high, whereas, the long-term;project might be deemed better if the cost of capital is low. Would changes in;the cost of capital ever cause a change in the IRR ranking of two such;projects? Explain.Assignment;-Unit 5;Problem;(9-10)The earnings, dividends, and stock price of Shelby Inc. are expected to;grow at 7% per year in the future. Shelby's common stock sells for$23 per;share, its last dividend was $2.00, and the company will pay a dividend of$2.14;at the end of the current year.;a.;a.;Using the discounted cash flow approach, what is its cost of equity?;b.;If the firm's beta is 1.6, the risk-free rate;is 9%, and the expected return on the market is 13%, then what would be the;firm's cost of equity based on the CAPM approach?;c.;c. If the firm's bonds earn a return of 12 %, then what would be your estimate;of rs using the over-own-bond-yield-plus-judgmental-risk-premium;approach? (Hint: Use the midpoint of the risk premium range.);d.;On the basis of the results of parts a through c, what would be your estimate;of Shelby's cost of equity?;Problem (10-1) a project has an initial;cost of $40,000 expected net cash inflows of $90,00 per year for 7 years, and a;cost of capital of 11%. What is the project's NPV? (hint: Begin by constructing;a time line).;(10-2);Refer to problem 10-1. What is the project?s IRR?;(10-3) Refer to problem 10-1. What is;the project?s MIRR?;(10-4) Refer to problem 10-1. What is;the project?s PI?;(10-5);Refer to problem 10-1. What is the project?s payback period?;(10-6) Refer to problem 10-1. What is;the project?s discounted payback period?;Discount Payback(DPB);(10-7);Your division is considering two investment projects, each of which requires an;up-front expenditure of $15 million. You estimate that the investments will;produce the following net cash flows;Year?.Project A????. Project;B;1??... $5,000,000???.. $20,000,000;2??... $10,000,000??... $10,000,000;3??... $20,000,000??... $6,000,000;a. What are the two projects? net present values, assuming the cost of capital;is 5%, 10%, and 15%?;b. what are the two projects? IRR at;these same costs of capital?
Paper#42890 | Written in 18-Jul-2015Price : $31