Explore BrainMass
Share

Explore BrainMass

    Dandy Products, Denver Corp, The Seattle Corp: ROR, cost of capital, NPV, IRR

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1. Dandy Product's overall weighted average required rate of return is 10%. Its yogurt division is riskier than average, its fresh produce division has average risk, and its institutional foods division has below-average risk. Dandy adjusts for both divisional and project risk by adding or subtracting 2% points. Thus, the maximum adjustment is 4% points. What is the risk-adjusted required rate of return for a low-risk project in the yogurt division?

    2. As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows:

    Project X Project Z
    Year Cash Flow Cash Flow
    0 -100,000 -100,000
    1 50,000 10,000
    2 40,000 30,000
    3 30,000 40,000
    4 10,000 60,000

    Denver's cost of capital is 15%.

    What is Project X's & Z's IRR and NPV?
    Which project would you choose?

    3. The Seattle Corporation has been presented with an investment opportunity that will yield cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 10%. Assume cash flows occur evenly during the year, 1/365th each day. What is the payback period for this investment?

    © BrainMass Inc. brainmass.com October 9, 2019, 5:29 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/dandy-products-denver-corp-the-seattle-corp-ror-cost-of-capital-npv-irr-58674

    Solution Summary

    In an Excel format, each questions is answered with the formulas, the computations and explanations as needed.

    $2.19