Purchase Solution

Project Acceptance/Rejection

Not what you're looking for?

Ask Custom Question

Please help to get this question done. Which formula need to be used to calculate which project will be accepted?

Jackson Corporation is evaluating the following four independent, investment opportunities:

Project Cost Rate of Return
A $300,000 14%
B 150,000 10
C 200,000 13
D 400,000 11

Jackson's target capital structure is 60% debt and 40% equity. The yield to maturity on the company's debt is 10%. Jackson will incur flotation costs for a new equity issuance of 12%. The growth rate is a constant 6%. The stock price is currently $35 per share for each of the 10,000 shares outstanding. Jackson expects to earn net income of $100,000 this coming year and the dividend payout ratio will be 50%. If the company's tax rate is 30%, which of the projects will be accepted?

Purchase this Solution

Solution Summary

The solution explains how to calculate the WACC and then to use it to make the acceptance/rejection decisions relating to various projects.

Solution Preview

In order to decide which project will be accepted, we need to compare the Rate of return on the project with the WACC of the company. If Rate of return > WACC we accept the project, else we reject the project.

Next step is to calculate the WACC.
WACC = Proportion of debt X after tax cost ...

Purchase this Solution


Free BrainMass Quizzes
Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Motivation

This tests some key elements of major motivation theories.