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    Assignment #3 V4

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    SumitGaikwad
    This document contains 5 questions related to financial concepts such as present value, future value, time value of money, payback period, net present value, internal rate of return, and weighted average cost of capital. Specifically, it asks the reader to calculate present and future values given rates and time periods, determine investment amounts needed to achieve given future values, select the better of two investment alternatives using payback period, select the better of two projects using net present value and profitability index, recalculate the decision using internal rate of return, and calculate a company's weighted average cost of capital given financial information.

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    Assignment #3 V4

    Uploaded by

    SumitGaikwad
    320 views4 pages
    This document contains 5 questions related to financial concepts such as present value, future value, time value of money, payback period, net present value, internal rate of return, and weighted average cost of capital. Specifically, it asks the reader to calculate present and future values given rates and time periods, determine investment amounts needed to achieve given future values, select the better of two investment alternatives using payback period, select the better of two projects using net present value and profitability index, recalculate the decision using internal rate of return, and calculate a company's weighted average cost of capital given financial information.

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    This document contains 5 questions related to financial concepts such as present value, future value, time value of money, payback period, net present value, internal rate of return, and weighted average cost of capital. Specifically, it asks the reader to calculate present and future values given rates and time periods, determine investment amounts needed to achieve given future values, select the better of two investment alternatives using payback period, select the better of two projects using net present value and profitability index, recalculate the decision using internal rate of return, and calculate a company's weighted average cost of capital given financial information.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    320 views4 pages

    Assignment #3 V4

    Uploaded by

    SumitGaikwad
    This document contains 5 questions related to financial concepts such as present value, future value, time value of money, payback period, net present value, internal rate of return, and weighted average cost of capital. Specifically, it asks the reader to calculate present and future values given rates and time periods, determine investment amounts needed to achieve given future values, select the better of two investment alternatives using payback period, select the better of two projects using net present value and profitability index, recalculate the decision using internal rate of return, and calculate a company's weighted average cost of capital given financial information.

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    of 4

    CON589 Construction Finance

    Assignment #3

    1. Present value: What is the present value of:


    a. $8,000 in 10 years at 6 percent?
    b. $16,000 in 5 years at 12 percent?
    c. $25,000 in 15 years at 8 percent?

    Future value: If you invest $12,000 today, how much will you have:
    a. In 6 years at 7 percent?
    b. In 15 years at 12 percent?
    c. In 25 years at 10 percent?

    Time Value of Money: How much would you have to invest today to receive:
    a. $12,000 in 6 years at 12 percent?
    b. $15,000 in 15 years at 8 percent?
    c. $5,000 each year for 10 years at 8 percent?
    d. $40,000 each year for 40 years at 5 percent?
    2.Assume a $40,000 investment and the following cash flows for two alternatives.

    Year Investment X Investment Y

    1 $ 6,000 $15,000

    2 8,000 20,000

    3 9,000 10,000

    4 17,000 —
    5 20,000 —

    Which of the alternatives would you select under the payback method?
    3 You are asked to evaluate the following two mutually exclusive projects for the Norton
    Corporation. Using the net present value method combined with the profitability index approach,
    which project would you select? Use a discount rate of 14 percent.

    Project X ($20,000 Investment) Project Y ($40,000 investment)

    Year Cash Flow Year Cash Flow


    1......................... 1
    $10,000 $20,000
    ..................................
    2......................... 2
    8,000 13,000
    ..................................
    3......................... 3
    9,000 14,000
    ..................................
    4......................... 4
    8,600 16,000
    ..................................

    4 Using the same data as presented in #2, calculate the IRR of both projects. Would you
    change the decision you arrived at in #2?
    5 Brook’s Window Shields Inc. is trying to calculate its cost of capital for use in a capital
    budgeting decision. Mr. Glass, the vice-president of finance, has given you the following
    information and has asked you to compute the weighted average cost of capital.
    The company currently has outstanding a bond with a 12.2 percent coupon rate and
    another bond with a 9.5 percent coupon rate. The firm has been informed by its investment
    banker that bonds of equal risk and credit rating are now selling to yield 13.4 percent.
    The common stock has a price of $58 and an expected dividend (D1) of $5.30 per share.
    The firm’s historical growth rate of earnings and dividends per share has been 9.5 percent,
    but security analysts on Wall Street expect this growth to slow to 7 percent in future years.
    The preferred stock is selling at $54 per share and carries a dividend of $6.75 per share.
    The corporate tax rate is 35 percent. The flotation cost is 2.1 percent of the selling price for
    preferred stock. The optimum capital structure is 40 percent debt, 25 percent preferred
    stock, and 35 percent common equity in the form of retained earnings.
    Compute the cost of capital for the individual components in the capital structure, and
    then calculate the weighted average cost of capital.

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