Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

The Campbell Company is a manufacture.

Their capital structure comprises

1. Long-Term debt, with an incremental borrowing rate of 8%

2. Capital stock, with the following information:

Risk free rate                    6%
Market rate of return         13%
Beta                               1.2
Long-Term debt            40% of sum financing
Capital Stock               60% of sum financing
The company’s tax rate is    40%

Required:

Using CAMP, evaluate the cost of equity financing

Evaluate the Weighted Average Cost of Capital

Analyze the subsequent 4 independent projects:

Use        NPV
             IRR
           Payback

To determine if the project must be accepted or rejected

IGNORE: Terminal cash flows and Working Capital needs. (Use 7 year depreciation table)

Use 7 year depreciation table (tax-depreciation)

Project 1

Purchase of capital equipment for expansion

Capital expenditure            1,000,000
Useful life 8 years
Pre-tax Cash flows (not including depreciation)

Year            Revenues            Costs
1                250,000            100,000
2                262,500            105,000
3                275,625            110,250
4                289,406            115,763
5                303,877            121,551
6                319,070            127,628
7                335,024            134,010
8                351,775            140,710
                 2,387,277         954,911
Project 2

Purchase of capital equipment for expansion

Capital expenditure            500,000

Useful life 8 years

Pre-tax Cash flows (not including depreciation)

Year            Revenues            Costs
1                 250,000            100,000
2                 262,500            105,000
3                 275,625            110,250
4                 289,406            115,763
5                 303,877            121,551
6                 319,070            127,628
7                 335,024            134,010
8                 351,775            140,710
                 2,387,277           954,911
Project 3

Purchase of capital equipment for replacement

Capital expenditure            1,000,000

Useful life 8 years

Pre-tax Cash flows (not including depreciation)

Year            Revenues            Costs
1                 200,000                -
2                 210,000                -
3                 220,500                -
4                 231,525                -
5                 243,101                -
6                 255,256                -
7                 268,019                -
8                 281,420                -
                  1,909,822              -
Project 4

Purchase of capital equipment for replacement

Capital expenditure            700,000

Useful life 8 years

Pre-tax Cash flows (not including depreciation)

Year            Revenues                Costs
1                      -                   (200,000)
2                      -                   (200,000)
3                      -                   (200,000)
4                      -                   (200,000)
5                      -                   (200,000)
6                      -                   (200,000)
7                      -                   (200,000)
8                      -                   (200,000)  
                        -                  (1,600,000)

*Suppose 200,000 is positive cash flow

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91562

Have any Question? 


Related Questions in Basic Finance

Question 1is there a way to determine which type of project

Question 1 Is there a way to determine which type of project (profitable or unprofitable) we have, without waiting until the actual results for comparison? Write in 150 words withREFERENCES. Question 2 What if one uses t ...

1 if everyone were perfectly honest would there be a role

1. If everyone were perfectly honest, would there be a role for financial intermediaries? 2. Describe some of the information problems in the financial system that lead firms to rely more heavily on internal funds than e ...

Choose a conceptual variable that can be considered to be a

Choose a conceptual variable that can be considered to be a trait of interest to you, and (after conducting a literature review) create a 20-item Likert scale to assess it. Administer the scale to at least 20 people. Com ...

1 when would you calculate a multiple correlation

1. When would you calculate a multiple correlation coefficient? What do you learn if you square a multiple correlation? 2. How does a cross-lagged panel correlation design provide evidence to support a causal link betwee ...

What is the present value of a 10-year annuity of 3000 per

What is the present value of a 10-year annuity of $3,000 per period in which payments come at the beginning of each period? The interest rate is 12 percent. Use Appendix D for an approximate answer, but calculate your fi ...

The frequency range for a telephone is between 500 hz and

The frequency range for a telephone is between 500 Hz and 4000 Hz. Why does a telephone not do a very good job of transmitting music?

A project has initial outlay of 2791 it has a single payoff

A project has initial outlay of $2791. It has a single payoff at the end of year 4 of $8578. what is the profitability index (PI) of the project, if the company's cost of capital is 6.06 percent.

Identify the three parties involved in any credit

Identify the three parties involved in any credit derivatives transaction and describe how they differ in their roles and responsibilities with regard to the transaction? If a portfolio of derivatives is delta hedged by ...

Contrast lookback options and barrier options and explain

Contrast lookback options and barrier options and explain the difference between in- and out-options ? Explain how weather derivatives could be used by an electric utility to manage the risk associated with power consump ...

1 what is meant by availability in logistics customer

1. What is meant by availability in logistics customer service? Provide examples of the different ways to monitor a firm performance in availability. 2. Compare and contrast speed, consistency, and flexibility as operati ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro