Reference no: EM131008645
Capital Budgeting Case - From the given case information, calculate the firm's WACC then use the WACC to calculate NPV and evaluate IRR for proposed capital budgeting projects with a capital rationing constraint. After you choose the project(s), recalculate the capital structure based on the assumption that the project(s) are implemented and determine if the new capital structure will signal the investors either positively, negatively, or not at all. Write a business report on your findings. Include an executive summary and appendices if applicable. See rubric for specific graded criteria.
Portfolio Project Choice 2:
Case information for business report
North Sea Oil has compiled the following data relative to current costs of its basic sources of external capital, long-term debt, preferred stock, and common stock equity:
Source of Capital Cost
Long term debt 7%
Preferred stock 19%
Common stock & related earnings 20%
Below are the company's target capital structure proportions used in calculating the weighted average cost of capital.
Source of Capital
|
Target Capital Structure
|
Lon Term Debt
|
.25
|
Preferred Stock
|
.25
|
Common Stock and Retained Earnings
|
.50
|
North Sea Oil has the opportunity to invest in the following projects:
|
Project A
|
|
Initial
Investment
|
$130,000
|
$85,000
|
Year
|
Cash Inflows
|
Cash Inflows
|
1
|
$25,000
|
$40,000
|
2
|
$35,000
|
$35,000
|
3
|
$45,000
|
$30,000
|
4
|
$50,000
|
$10,000
|
5
|
$55,000
|
$5,000
|
Using WACC to calculate the NPV and evaluate the IRR, which project should be implemented? (You may also wish to include Payback to further support your answer).
Assuming the project(s) is implemented using equity financing, the capital structure changes to:
Source of Capital
|
New Capital Structure after project implementation
|
Lon Term Debt
|
.20
|
Preferred Stock
|
.20
|
Common Stock and Retained Earnings
|
.60
|
Calculate the New WACC and briefly discuss in your report if this new WACC and capital structure might signal the market and investors.
Estimated mean difference in page
: a) Find the estimated mean difference in page visits be- tween the two websites. b) Find the standard error of the estimated mean difference. c) Calculate the t-statistic for the observed difference in mean page visits assuming that the true mean ..
|
Calculate the values of the sample mean and median
: By how much could the largest time be increased without affecting the value of the sample median? By how much could this value be decreased without affecting the sample median?
|
Estimated mean age difference
: a) Find the estimated mean age difference between the two neighborhoods. b) Find the standard error of the estimated mean difference. c) Calculate the t-statistic for the observed difference in mean ages assuming that the true mean difference is 0.
|
Find a cartesian equation for the parametric curve
: Eliminate the parameter t to find a Cartesian equation for the parametric curve. Sketch this parametric curve, indicating with arrows the direction in which the curve is traced.
|
Capital structure might signal the market and investors
: Calculate the New WACC and briefly discuss in your report if this new WACC and capital structure might signal the market and investors.
|
Which measure of center determines this salary
: San Luis Obispo County supervisors are supposed to be paid the average of the two counties among these six in the middle of the salary range. Which measure of center determines this salary, and what is its value? Why is the other measure of center..
|
Philanthropic organization
: 1. Free gift. A philanthropic organization sends out "free gifts" to people on their mailing list in the hope that the re- ceiver will respond by sending back a donation. Typical gifts are mailing labels, greeting cards, or post cards.
|
Company about using the collection agency
: Given this, what recommendation(s) would you make to the credit card company about using the collection agency?
|
Write few sentences describing the important characteristics
: Use these data to construct a boxplot that shows outliers. Write a few sentences describing the important characteristics of the boxplot.
|