14. Following is project A's cash flow table Year Cash Flow 0 -26,000 1 6,200 2 6,200 3 6,200 4 6,200 5 9,700 Assuming that the project is found by 40%...

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Finance

14.
Following is project A's cash flow table
Year
Cash Flow
0
-26,000
1
6,200
2
6,200
3
6,200
4
6,200
5
9,700
Assuming that the project is found by 40% of equity and 60% ofdebt. The required rate of return of equity is 10%. The yield ofdebt is 6% and the tax rate is 30%.
Using the above information to answer Q1 - Q4.
Q1) What is the WACC of this project?
a)6.52%
b)4%
c)7.43%
d)5%
Q2) What is the NPV of this project?
a) 2303.50
b) 2823.21
c) 2795.86
d) 2187.62
Q3) What is the IRR of this project?
a) 10.27%
b) 9.54%
c) 8.78%
d) 9.23%
Q4) Should we invest in this project?
a) No, because the project payback year is too long
b) No, because the IRR is too low
c) Yes, because the project NPV is greater than 0
d) Not sure

Answer & Explanation Solved by verified expert

3.8 Ratings (506 Votes)

1Weight of equity 1DAWeight of equity 106WE04Weight of debt DAWeight of debt 06WD06After tax cost of debt cost of debt1tax rateAfter tax cost of debt 610342WACCafter tax cost of debtWDcost of See Answer

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14.Following is project A's cash flow tableYearCash Flow0-26,00016,20026,20036,20046,20059,700Assuming that the project is found by 40% of equity and 60% ofdebt. The required rate of return of equity is 10%. The yield ofdebt is 6% and the tax rate is 30%.Using the above information to answer Q1 - Q4.Q1) What is the WACC of this project?a)6.52%b)4%c)7.43%d)5%Q2) What is the NPV of this project?a) 2303.50b) 2823.21c) 2795.86d) 2187.62Q3) What is the IRR of this project?a) 10.27%b) 9.54%c) 8.78%d) 9.23%Q4) Should we invest in this project?a) No, because the project payback year is too longb) No, because the IRR is too lowc) Yes, because the project NPV is greater than 0d) Not sure

		a) No, because the project payback year is too long
		b) No, because the IRR is too low
		c) Yes, because the project NPV is greater than 0
		d) Not sure