What is the cut-off rate

Assignment Help Financial Accounting
Reference no: EM132971173

Question - Merry Electronics Corporations is currently at its target debt equity of 0.5:1. It is considering a proposal to expand capacity which is expected to cost Rs. 500 Million and generate after tax cash flows of Rs. 130 Million per year for the next eight years. The tax rate for the firm is 30 percent. Ramesh, the CFO of the Company, has considered to financing options:

(i) Issue of equity shares, the required rate on the company's new equity is 20% and the issuance cost shall be 12%.

(ii) Issue of debentures at a coupon rate of 13%. The issuance cost will be 3%. You are required to calculate the following:

(a) What is the Cut-off Rate (WACC) of the Merry Electronics Corporations?

(b) Discuss the feasibility of project using the NPV technique supported by your detailed calculation.

Reference no: EM132971173

Questions Cloud

What a balance sheet for a nonprofit entity is : Define what a balance sheet for a nonprofit entity is and what are the main areas covered which differ from for-profit organizations.
What major factors can cause an alliance to fail : What major factors can cause an alliance to fail? What components are key to an alliance's success?
Describe different methods conduct interviews : Describe different methods by which you can conduct interviews?
How much will alpha computing inc accrue for wages : Find How much will Alpha Computing Inc. accrue for salaries and wages for pay period ending May 11 in the April accounting period in order to accurately reflect
What is the cut-off rate : Issue of equity shares, the required rate on the company's new equity is 20% and the issuance cost shall be 12%. What is the Cut-off Rate
Calculate the future value of investing in your deposit : Given what Mr. and Mrs. Drake have to invest today, apply financial math and calculate the future value of investing in your recommended term deposit
What are the main areas covered in a financial analysis : What are the main areas covered in a financial analysis for a nonprofit organization and provide an example of a completed financial analysis
Design an advertisement for a product : Explain how you will develop a more effective advertisement for the product.
How much will alpha computing inc accrue for salaries : How much will Alpha Computing Inc. accrue for salaries and wages for the pay period ending May 11 in the April accounting period in order to accurately reflect

Reviews

Write a Review

Financial Accounting Questions & Answers

  Find what adjustment is needed to the cash balance book

What adjustment is needed to the Cash balance book? Transatlantic Corporation recorded its check number 7777 in its accounting records as $105

  What the transaction would lead to the creation of a

In 2016, this transaction would lead to the creation of a? Randolf is interested in making his business more energy efficient. Comfy Home purchased

  What is the noncontrolling interest in net income

On January 1, 2019, Entity B sold land to Entity A with a cost of P 2,000,000 at a selling price of P 2,200,000. What is noncontrolling interest in net income

  Prepare the two adjusting entries required at december

Prepare the two adjusting entries required at December 31 to record the accrued salaries expense and the accrued legal fees revenue.

  Difference between interim reports under ifrs and u.s. gaap

1.[Based on Appendix 5] What is the primary difference between interim reports under IFRS and U.S. GAAP?

  The current ratio as short-term liabilities

If a company decides to refinance the short-term liabilities to long term liabilities, they are no longer short-term liabilities. So do you feel they should still be included in the current ratio as short-term liabilities, why or why not?

  What was the role of rating agencies in the GFC

The GFC is a complex event and we are still, in some ways, suffering consequences from it. What was the role of rating's agencies in the GFC

  What is the dollar amount of? joel return

During the? year, he received dividend checks amounting to ?$258. Joel recently sold the stock for ?$60 per share. What is the dollar amount of? Joel's return?

  Compute the contribution margin ratio

Sandhill Company bottles and distributes B-Lite, a diet soft drink. Compute the contribution margin ratio and the margin of safety ratio

  Determine the total legal capital

On January 28, forty thousand ordinary shares were issued at P15 per share. Determine the total legal capital

  Journalize the entry to record the exchange

Determine the annual depreciation for each of the five years of estimated useful life of the equipment - Journalize the entry to record the exchange.

  Determine corrected amounts for cost of goods sold

Bienvenu later discovered that its ending inventories at December 31, 2009 and 2010, were overstated by $110,000 and $35,000, respectively. Determine the corrected amounts for 2010 cost of goods sold and December 31, 2010, retained earnings.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd