Question the firm is planning next years capital budget and, Ask an Expert

Finance

Question: The firm is planning next year's capital budget and projects its net income at $75,000,000 and its payout ratio is 40 percent. The following independent, indivisible and equally risky investment opportunities are available to the company. Firms will choose investment projects as long as a Project's IRR > RRR, where the Required Rate of Return is determined by the AWCOC, which in this case is 11%.

Project IRR Initial Investment

A 17% $45 million

B 15% $60 million

C 13% $60 million

D 10% $15 million

E 9% $20 million

a. Which investment opportunities should Alpha take?

b. Does the firm have enough internal funds available? EXPLAIN.

c. Does the firm have an opportunity to use debt as an external source to finance recommended investments? Explain.

d. If so, demonstrate effect on capital structure.

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92813110

Have any Question?Write your Review or question?

Related Questions in Basic Finance

An all-equiry business has 175m shares outstanding selling

An all-equiry business has 175M shares outstanding selling for $20/share. Management believes interest rates are unreasonably low and decides to execute a leveraged recapitalization. It will raise $1B in debt and repurch ...

When restating nonmonetary asset accounts the price index

When restating nonmonetary asset accounts, the price index at the current date represents the price index from which the conversion is made, and the price index at the time of acquisition represents the index to which th ...

Question - comparing aprs james sprater of grand junction

Question - Comparing APRs James Sprater of Grand Junction, Colorado, has been shopping for a loan to buy a used car. He wants to borrow $18,000 for four or five years. James' credit union offers a declining-balance loan ...

Why might one firm have positive cash flows and be headed

Why might one firm have positive cash flows and be headed for financial trouble, whereas another firm with negative cash flows could actually be in a good financial position.

If the rate of inflation is 43 what nominal interest rate

If the rate of inflation is 4.3%?, what nominal interest rate is necessary for you to earn a 2.8% real interest rate on your? investment? ?(Note: Be careful not to round any intermediate steps less than six decimal? plac ...

Sensitivity analysisconsider a project to supply detroit

Sensitivity Analysis Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,400,000 investment in threading equipment to get the project st ...

Problem financial planningfinancial forecasting - use the

PROBLEM: FINANCIAL PLANNING Financial Forecasting - Use the percent of sales methods to prepare pro forma income statement for Calico Sales Co., Inc. projected sales for next year is P 4million. Cost of Goods sold is exp ...

Question - the following are annual rates of return for us

Question - The following are annual rates of return for U.S. government T-bills and U.K. common stocks. Year U.S. Government T-Bills U.K. Common Stock 2003 .063 .150 2004 .081 .043 2005 .076 .374 2006 .090 .192 2007 .085 ...

Question - the cost of raising capital through retained

Question - The cost of raising capital through retained earnings is the cost of raising capital through issuing new common stock. The current risk-free rate of return is 4.2%. The market risk premium is 6.1%. D'Amico Co. ...

Could you please explain this question for me pretty

Could you please explain this question for me? Pretty struggle with it right now. "The biggest four banks in Australia are too big to fail. With reference to financial system stability, critique this statement."

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

Recent Questions

Ask Basic Finance Expert