##### 85. Yesteryear Productions is considering a project with an-(Answered)

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**Question**

85. Yesteryear Productions is considering a project with an initial start up cost of $960,000. The firm maintains a debt-equity ratio of 0.50 and has a flotation cost of debt of 6.8 percent and a flotation cost of equity of 11.4 percent. The firm has sufficient internally generated equity to cover the equity cost of this project. What is the initial cost of the project including the flotation costs?

A. $979,417__B.__ $982,265

C. $992,386

D. $1,038,513

E. $1,065,089

Average flotation cost = (1/1.5) (0.0) + (0.5/1.5) (0.068) = 0.0226667 Initial cost = $960,000/(1 - 0.0226667) = $982,265

my questions is that:

since "The firm has sufficient internally generated equity to cover the equity cost of this project." why do i need to calculate the flotation cost in equity??

A company has 12% WACC and is considering two investments with the following cash flows:

End of Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |

Project A: | -300 | 0 | -100 | -100 | 550 | 500 | 200 |

Project B: | -300 | 134 | 134 | 134 | 134 | 134 | 134 |

What is each project?s NPV?

What is each project?s IRR?

What is each project?s MIRR?

Assuming the projects are independent, which one should you recommend?

Assuming the projects are mutually exclusive, which one should you recommend?

For part e), Is NPV rule consistent with IRR rule? Calculate the crossover rate where the two projects? NPV are equal.

A company has 12% WACC and is considering two investments with the following cash flows:

End of Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |

Project A: | -300 | 0 | -100 | -100 | 550 | 500 | 200 |

Project B: | -300 | 134 | 134 | 134 | 134 | 134 | 134 |

What is each project?s NPV?

What is each project?s IRR?

What is each project?s MIRR?

Assuming the projects are independent, which one should you recommend?

Assuming the projects are mutually exclusive, which one should you recommend?

For part e), Is NPV rule consistent with IRR rule? Calculate the crossover rate where the two projects? NPV are equal.

I did not find the answer from the webs. if it is possible to know the answer will be great/ ?

Paper#9210014 | Written in 27-Jul-2016

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