EOver-the-Top Canopies (OTC) is evaluating two independent investments. Project S costs $170,000 and has an IRR equal to 9 percent, and Project L costs$160,000 and has an IRR equal to 7 percent. OTC's capital structure consists of 20 percent debt and 80 percent common equity, and its component costs ofcapital are rat = 4%, rs = 11%, and re = 14.5%. If OTC expects to generate $260,000 in retained earnings this year, which project(s) should be purchased?Round your answers to one decimal place.ProjectSLeBookThus, -Select-WACC%%Acceptable?-Select- ✓-Select-should be purchased.Grade it NowSave & ContinueContinue without saving

The weighted average cost of capital measures the typical cost a business pays to finance its…

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Project S L Thus, -Select- WACC Acceptable? % % should be purchased. -Select- -Select-

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...

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Over-the-Top Canopies (OTC) is evaluating two independent investments. Project 5 costs $150,000 and has an IRR equal to 13 percent, and Project L costs $140,000 and has an IRR equal to 11 percent. OTC's capital structure consists of 20 percent debt and 80 percent common equity, and its component costs of capital are far = 3%, rs = 11%, and re = 12.5%. If OTC expects to generate $220,000 in retained earnings this year, which project(s) should be purchased? Round your answers to one decimal place. Acceptable? Project S L Thus, -Select- WACC % % should be purchased, -Select- -Select-
Lane Industries is considering three independent projects, each of which requires a $2.8 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 = 12% IRR = 14% 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 $3,900,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
Walsh Company is considering three independent projects, each of which requires a $3 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 Project M (medium risk): Project L (low risk): Cost of capital Cost of capital = 15% = 11% = 8% IRR = 19% IRR = 12% 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 50% debt and 50% common equity, and it expects to have net income of $4,443,000. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
Over-the-Top Canopies (OTC) is evaluating two independent investments. Project S costs $155,000 and has an IRR equal to 9 percent, and Project L costs $145,000 and has an IRR equal to 8 percent. OTC's capital structure consists of 20 percent debt and 80 percent common equity, and its component costs of capital are rdT = 4%, rs = 10%, and re = 13.5%. If OTC expects to generate $230,000 in retained earnings this year, which project(s) should be purchased? Round your answers to one decimal place. Project S -> WACC ______ % -> Acceptable? Yes / No Project L -> WACC ______ % -> Acceptable? Yes / No Thus, (ONLY PROJECT S, ONLY PROJECT L, BOTH PROJECTS, NEITHER PROJECT) should be purchased.
Walsh Company is considering three independent projects,each of which requires a $4 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 = 16% IRR = 19%Project M (medium risk): Cost of capital = 12% IRR = 13%Project L (low risk): Cost of capital = 9% IRR = 8%Note that the projects’ costs of capital vary because the projects have different levels ofrisk. The company’s optimal capital structure calls for 40% debt and 60% common equity,and it expects to have net income of $7,500,000. If Walsh establishes its dividends from theresidual dividend model, what will be its payout ratio?
Walsh Company is considering three independent projects, each of which requires a $3 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented below: Project H (High risk): Cost of capital = 16% IRR = 19% Project M (Medium risk): Cost of capital = 13% IRR = 11% Project L (Low risk): Cost of capital = 8% 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 30% debt and 70% common equity, and it expects to have net income of $7,268,000. 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. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.
Walsh Company is considering three independent projects, each of which requires a $4 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 = 16% IRR = 18% Project M (medium risk): Cost of capital = 13% IRR = 12% Project L (low risk): Cost of capital = 7% IRR = 10% 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 $7,154,000. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio?
Lane Industries is considering three independent projects, each of which requires a $2.4 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are the following: 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 = 9% IRR = 10% 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 $4,200,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio?
Walsh Company is considering three independent projects, each of which requires a $3 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 = 17% Project M (medium risk): Cost of capital = 15% Project L (low risk): Cost of capital = 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 45% debt and 55% common equity, and it expects to have net income of $14,800,500. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. IRR = 21% IRR = 12% IRR = 8% LO (Ctrl) -
Lewis Services is evaluating six investment opportunities (projects). The following table reflects each project's net present value NPV and the respective initial investments required. All of these projects are independent. Project NPV Investment 2,500 2,500 II 4,000 20,000 II 7,500 30,000 IV 8,000 40,000 2,000 10,000 VI 2,500 5,000 Lewis has an investment constraint of P50,000. Which combination of projects would represent the optimal investment that should be recommended to Lewis Services' management? O I. II, and VI O I, II, V, and VI O , II, II, IV, V, and VI OI, II, III, V, and VI
Walsh Company is considering three independent projects, each of which requires a $5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Project M (medium risk): Cost of capital = 15% Cost of capital = 13% Project L (low risk): Cost of capital = 7% IRR = 8% 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 $11,329,500. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. % IRR = 22% IRR = 12%
The Welch Company is considering three independent projects, each of which requires a $5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are as follows: Project H (high risk): Cost of capital = 16%; IRR = 20% Project M (medium risk): Cost of capital = 12%; IRR = 10% Project L (low risk): Cost of capital = 8%; IRR = 9% Note that the projects’ cost of capital varies because the projects have different levels of risk. The company’s optimal capital structure calls for 50% debt and 50% common equity. Welch expects to have net income of $7,287,500. If Welch bases its dividends on the residual model (all distributions are in the form of dividends), what will its payout ratio be?