Appraise the project using both npv and irr evaluation

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Pak Foods Ltd. is considering a project of new product line that requires the initial cost of Rs. 10 million. The company is considering to raise the capital from debt, equity and preferred stock. The target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the cost of preferred stock is 6.00%, and the cost of equity is 11.25%, and the tax rate is 40%.

The project has an economic life of 7 years and has the following projected cash flow data.

Year 0 1 2 3 4 5 6 7__

Cash flows Rs. (10m) Rs.1.0m Rs.1.75m Rs.4.0m Rs.4.2m Rs.3.0m Rs.2.2m Rs.2.0m

a) What is the weighted cost of capital (WACC)? (in calculation only round of the final value to two decimal points)

b) What is the project's NPV?

c) What is the project's IRR?

d) Appraise the project using both NPV and IRR evaluation techniques.

Reference no: EM132544139

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