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a) Use excel of a financial calculator to estimate the IRR of the following business opportunity: Initial cost of $100,000, expected pre-tax annual cash flows of $54,000 for the next 7 years, and a 20% small business tax rate. There are no assets to depreciate but there is a yearly $25,000 pre-tax opportunity cost which recognizes the time you spend operating the business.
b) For this type of risky investment, you would normally require at least a 16% rate of return to compensate for the business risk alone. Assuming however that you can access a line of credit with a fixed rate of 6%, what is the minimum amount of debt capital ($$) that you would have borrow before the project becomes profitable to finance?
c) What is the most important difference between the NPV and IRR methodologies? Discuss briefly whether or not you feel that distinction would be important to this particular case.
Roman Roads has a number of capital projects available for investment this year but has access to a limited amount of capital. Specifically, the firm has arranged to secure a $25
what is the major value of the weighted cost of capital calculation for the firm?
Profit for the year R3 million R4 million Gross dividends R1.5 million R2 million Market value per ordinary share R4 R1.60 Number of ordinary shares 5
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