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yuradex [85]
3 years ago
7

You’re considering making an investment in a project that will generate $1,000,000 per year indefinitely. To finance this projec

t, you will be using a combination of both bonds and stocks. 60% of your financing needs will be in the form of bonds at a rate of 5%, and the remaining 40% will be issued in the form of stocks at a rate of 12%. What is the most amount of money you would consider spending for this project (to receive a return of $1,000,000 per year, indefinitely) g
Business
1 answer:
Nataliya [291]3 years ago
3 0

Answer:

The maximum that the company should consider spending on this project is $12,820,512.82

Explanation:

The project's returns are in the form of a perpetuity of $1000000 or $1 million per year. A perpetuity is a constant cash flow that occurs after equal intervals of time indefinitely.

To calculate the maximum amount that the company should consider spending on this project, we need to determine the present value of perpetuity.

The formula for present value of perpetuity is,

Present value of perpetuity = Cash Flow / Discount rate

The discount rate in this case will be the WACC of the company. The WACC or weighted average cost of capital is the cost of the company's capital structure that can contain the following components namely debt, preferred stock and common stock.

To fund this project, the company will raise 60% amount from debt financing at 5% cost of debt and 40% from common stock financing at 12% cost of common stock equity.

The WACC will be,

WACC = wD * rD  + wE * rE

Where,

  • w is the weight of each component
  • r is the cost of each component
  • D is debt and E is common stock

WACC = 0.6 * 0.05  +  0.4 * 0.12    = 0.078 or 7.8%

The present value of perpetuity discounted at 7.8% will be,

Present value of perpetuity = 1000000 / 0.078

Present value of perpetuity = $12,820,512.82

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7.37 For the net cash flow series, (a) determine the number of possible i* values using the two sign tests, (b) find the EROR us
nlexa [21]

Answer:

The answer is 25.19% .

Note: The values were not stated for the net series cash flows, during my research and i found the complete question and solved it.

Explanation:

<em>From the question given,</em>

<em>The first step is to make use of a table for the net cash flow series</em>

<em>Year                      1                  2                3              4             5             6</em>

<em>Net cash flow    $4100   $2000         $7000         $12000  $700       $800</em>

<em>Then,</em>

<em>Solution : MIRR is defined as modified internal rate of return, It accounts for the positive cash flows with reinvestment by using re-investment rate and negative cash flows are calculated at their present values to keep the fund aside by using finance rate. </em>

<em> As given also reinvestment rate = 20% and finance cost rate = 10%. </em>

<em> Now, from the table given of cash flows, we will calculate the future value of all cash flows in year 6. </em>

<em> FV = 4100*(1+0.20)^5 + 12000*(1+0.20)^2 + 800*(1+0.20)^0 = $28282.11 </em>

<em> Now,</em>

<em> By applying the rate of   we will computer teh PV of -ve cash flows : </em>

<em> PV = -2000/(1+0.1)^2 + -7000/(1+0.1)^3 + -700/(1+0.1)^5 = -$7346.73 </em>

<em> Now MIRR can be calculated by using the formula , MIRR = \√[n]{FV(positive cash flows/PV of negative cash flows)}-1 = \√[6]{28282.11/7346.74)}-1 </em>

<em> MIRR = 1.2519-1 = 0.2519 or 25.19% </em>

<em> Therefore, the only value Possible = 25.19% in this case.</em>

5 0
3 years ago
In the hospitality industry, the two largest expositions are the american hotel &amp; lodging association conference and the ___
Phantasy [73]
The choices are:
A) Food Safety Executives B) National Restaurant Association
<span>C) International Hotel/Motel & Restaurant Show D) Hospitality Design Expo
</span>
The answer is B) National Restaurant Association, it <span>is known and recognized as the largest foodservice trade association in the world that supports thousands of restaurants. NRA has a reputable status in the hospitality industry. The aim is to help empower restaurant entrepreneurs and provide support for its members. </span>

7 0
3 years ago
Some goods can be produced at low cost only if they are produced in large quantities. this phenomenon is called
I am Lyosha [343]
I believe your answer is:

economies of scale
3 0
3 years ago
A distributor of personal computers has five locations in a city. In the year's first quarter, the sales in units were: Location
iragen [17]

Answer:

It is observed  that the value of test statistics (19.168) is greater than the critical value (13.277), thus the rejected hypothesis, H₀ at α = 0.01.

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Explanation:

Solution

Given that:

Object: Test whether the sales were the same for all locations by applying 1% significance level.

The Null Hypothesis H₀ : Sales were the same for all locations

E₁ =  70 +75 +70+ 50 + 35/5 = 60

The Alternative Hypothesis Hₐ : Sales were not the same for all locations

Now,

The decision rule:

the Level of Significance be α = 0.01

Degrees of freedom is df= Number of categories -1

=5-1 = 4

Note: Kindly find an attached copy of part of  the work solution of this given question

3 0
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. "Place" decisions: A. may focus on the location of retail stores and wholesale facilities. B. may focus on the selection and u
beks73 [17]

Answer:

E

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All of these choices are correct.

Place refers to the channels of distribution either through distribution/market channels and physical distribution. It is a vital part of the total marketing mix, it ensures that products are available to the appropriate markets, at the right proportion or quantity, at the best condition, appropriate time, anytime and at all times.

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