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Garage, Inc., has identified the following 2 mutually exclusive projects:
Year Cash Flow A Cash Flow B
0 -$43,000 $-43,500
1 $21,400 $6,400
2 $18,500 $14,700
3 $13,800 $22,800
4 $7,600 $25,200
What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct?
If the required return is more than 11%, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?
Over what range of discount rates would the company choose project A? Project B? At what discount rate would the company be indifferent between these 2 projects? Explain.
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Consider the following cash flows: Year Cash Flow 0 –$ 34,000 1 15,100 2 16,600 3 12,500 Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow 0 –$37,500,000 1 56,500,000 2 –12,500,000
A $1,000 face value bond of Acme Inc. pays an annual coupon and carries a coupon rate of 4.75%. It is a 30 year bond when issued and it has 11 years remaining to maturity. If it currently has a yield to maturity of 5.5%. What interest payments to bon..
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Pine Tree Farms Corporation (PTFC) has a target capital structure of 20% debt, 10% preferred stock, and 70% common equity. Currently PTFC has a capital structure of 70% debt, 10% preferred stock, and 80% common stock. What is PTFC’s weighted average ..
Gupta Corporation is undergoing a restructuring, and its free cash flows are expected to vary considerably during the next few years. However, the FCF is expected to be $45.00 million in Year 5, and the FCF growth rate is expected to be a constant 6...
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Halestorm Corporation’s common stock has a beta of 1.26. Assume the risk-free rate is 5.1 percent and the expected return on the market is 12.6 percent. What is the company’s cost of equity capital?
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