Excel Online Structured Activity: Residual dividend modelWalsh Company is considering three independent projects, each of which requires a $6 million investment. The estimated internal rate of return (IRR) and cost of capital for theseprojects are presented below:Project H (High risk):Cost of capital = 16%IRR = 19%Project M (Medium risk):Cost of capital = 14%IRR = 12%Project L (Low risk):Cost of capital = 8%IRR = 11%Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 35% debt and 65% common equity,and it expects to have net income of $13,004,500. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis toanswer the question below.XOpen spreadsheetIf Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.%

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Answered: Excel Online Structured Activity:…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.3.1P

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Excel Online Structured Activity: Residual dividend model Walsh Company is considering three independent projects, each of which requires a $6 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented below: Project H (High risk): Project M (Medium risk): Project L (Low risk): Cost of capital = 17% Cost of capital % = 13% Cost of capital = 7% IRR = 21% IRR = 10% IRR = 9% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 45% debt and 55% common equity, and it expects to have net income of $14,746,500. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.
Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$46,800 -$63,600 1 -21,600 20,400 2 43,200 20,400 3 43,200 20,400 4 43,200 20,400 5 -28,800 20,400 Sketch the NPV profile for projects A & B. Determine the crossover point for these projects’ NPV profiles.
Case 1: Assume you are evaluating two mutually exclusive projects,the cash flows of which appear below, and that your company uses a cost of capital of 8 percent to evaluate projects such as these. Time Project A Cash Flow Project B Cash Flow 0 -$650 -$700 1 100 300 2 250 -200 3 250 550 4 200 200 5 100 80 a. Calculate the payback of Project A. b. Calculate the discounted payback of Project A. c. Calculate the IRR of Project A. d. Using the NPV method and assuming a cost of capital of 8 percent, which of these projects should be accepted?
NPV and IRR analysis of projects Thomas Company is considering two mutually exclusive projects. The firm, which has a cost of capital of 10%, has estimated its cash flows as shown in the following table: a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. a. The NPV of project A is $ (Round to the nearest cent.) Enter your answer in the answer box and then click Check Answer. 7 parts remaining Clear All Check Answer 10:3 5/11 Type here to search Cup
Quantitative Problem: Lane Industries is considering three independent projects, each of which requires a $3.3 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): IRR = 18% Cost of capital = 16% Cost of capital = 11% Cost of capital = 6% Project M (medium risk): Project L (low risk): IRR = 9% IRR = 7% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and expects to have net income of $4,200,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
XY Company is considering 5 investment projects as follows: Project Investment ($) Profitability index (PI) A 10,000 1.2 B 6,000 1.1 C 18,000 1.6 D 14,000 0.9 E 12,000 1.3 The company has $30,000 available for investment. Projects C and E are mutually exclusive. All projects can be undertaken only once and are not divisible. Required: (iii)Calculate the maximum NPV earned from the projects to be picked.
XY Company is considering 5 investment projects as follows: Project Investment ($) Profitability index (PI) A 10,000 1.2 B 6,000 1.1 C 18,000 1.6 D 14,000 0.9 E 12,000 1.3 The company has $30,000 available for investment. Projects C and E are mutually exclusive. All projects can be undertaken only once and are not divisible. Required: Calculate the projects’ NPV
Quantitative Problem: Lane Industries is considering three independent projects, each of which requires a $2.7 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital = 14% IRR = 16% Project M (medium risk): Cost of capital = 9% IRR = 7% Project L (low risk): Cost of capital = 6% IRR = 7% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and it expects to have net income of $3,300,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$46,800 -$63,600 1 -21,600 20,400 2 43,200 20,400 3 43,200 20,400 4 43,200 20,400 5 -28,800 20,400 Assuming a cost of capital of 14%, which of these projects should be accepted? Under what conditions on the cost of capital should project B be preferred to project A?
IRR-Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table: The firm's cost of capital is 13%. a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs. b. Which project is preferred? a. The internal rate of return (IRR) of project X is%. (Round to two decimal places.)
IRR-Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table: 9. The firm's cost of capital is 14%. a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRS. b. Which project is preferred? a. The internal rate of return (IRR) of project X is %. (Round to two decimal places.) Data Table Is project X acceptable on the basis of IRR? (Select the best answer below.) No (Click on the icon located on the top-right corner of the data table below in order to Yes copy its contents into a spreadsheet.) Project X Initial investment (CF) $500,000 Project Y $300.000 The internal rate of return (IRR) of project Y is %. (Round to two decimal places.) Is project Y acceptable on the basis of IRR? (Select the best answer below.) Year (f) Cash inflows (CF,) 1 $110,000…
IRR: Mutually exclusive projects Nile Inc. wants to choose the better of two mutually exclusive projects that expand warehouse capacity. The projects' cash flows are shown in the following table: . The cost of capital is 18%. a. The internal rate of return (IRR) of project X is %. (Round to two decimal places.) Data table Is project X acceptable on the basis of IRR? (Select the best answer below.) (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Yes O No Project X $500,000 Project Y $310,000 The internal rate of return (IRR) of project Y is %. (Round to two decimal places.) Initial investment (CF) Is project Y acceptable on the basis of IRR? (Select the best answer below.) Year (t) Cash inflows (CF,) $120,000 $140,000 $105,000 $60,000 1 $100,000 O Yes $160,000 O No $170,000 $190,000 b. Which project is preferred? (Select the best answer below.) $250,000 $30,000 OA. Project X N 34 5

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