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You are the manager at K&B Inc. You have been told that the company has an opportunity

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Question;You are the manager at K&B Inc. You have been told that;the company has an opportunity to expand into a new market, but will need to;make a major investment to do it., Division Vice-President, ask you;to evaluate the different opportunities and complete a report for her including;your recommendation on which expansions to do (using the methods discussed in;the course for capital budgeting). The table below contains the information for;each project. Assume all the information given to you is accurate and all three;expansions have the same risk. Options for capital structure (determine the;WACC and choose the best capital structure for the project): 1. 35% debt at 10%;with tax-rate of 40%, no preferred stock, 65% common stock at 15% or 2. 50%;debt at 11% with tax-rate of 40%, no preferred stock, 50% common stock at 15%.;Total available funds the company can raise for the expansion(s) is $10,000,000.;The expansions cash flows are as follows: Expansion Florida Georgia Alabama;Initial Cost -10,000,000 -10,000,000 -10,000,000 Year 1 Cash Flow 1,690,000;3,850,000 0 Year 2 Cash Flow 1,690,000 3,000,000 0 Year 3 Cash Flow 1,690,000;2,500,000 725,000 Year 4 Cash Flow 1,690,000 2,000,000 800,000 Year 5 Cash Flow;1,690,000 1,000,000 900,000 Year 6 Cash Flow 1,690,000 700,000 2,000,000 Year 7;Cash Flow 1,690,000 0 3,000,000 Year 8 Cash Flow 1,690,000 0 4,000,000 Year 9;Cash Flow 1,690,000 0 5,000,000 Year 10 Cash Flow 1,690,000 0 6,000,000 After;your evaluation, write a memo (in word) to XXXXX XXXXX indicating your;recommendation. In the memo, you should indicate the rank of the projects;which projects are viable, then you should indicate which project(s) you recommend.;The memo is required to be in proper business memo style. You should submit the;memo and your excel file to blackboard. (I have to see the formulas ? not just;the answers to be given full credit. Reminder: +5 pts bonus if you can;calculate the discounted payback for all three states (I have to see the;formulas in Excel ? not just the answers)

 

Paper#49974 | Written in 18-Jul-2015

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