NPV of Project with Cost of Capital

Related BrainMass Solutions

• If the discount rate in not known with certainty, which project should the firm take as a function of the discount rate?

  of capital 8% NPV= $31,212.68 $49,363.81 If cost of capital is 8% we will accept Project 2 as its NPV is higher Cost of capital 10% NPV= $16,986.54 $29,246.64 If cost of capital is 8% we will accept Project 2 as its NPV is higher

• Ranking conflicts between NPV and IRR,

  The firm faces a cost of capital of 15% NPV of project A= $1,379.96 NPV of project B= $11,342.16 IRR of project A= 25.69% IRR of project B= 19.43% This situation indicates a conflict of rankings

• Choosing between two mutually exclusive projects

  Year Project A Project B 0 -100 -100 1 30 49 2 50 49 3 70 49 Cost of capital 2% NPV= $43.43 $41.31 We will chose project A as its NPV is higher, if cost of capital is 2% Cost of capital 12% NPV=

• cost of capital

  If the cost of capital is 12 percent, Project B will have a higher NPV. b. If the cost of capital is 17 percent, Project B will have a higher NPV. c. Project B is larger than Project A. d. Statements a and c are correct. e.

• Weighted Average cost of capital and Marginal cost

  of capital and NPV

• Assuming an 10 percent cost of capital, what is the project's NPV, IRR and MIRR? Draw this project's NPV profile on a new graph. Explain what is happening with the project.

  If we assume identical cash flows for all firms, then for firms with a higher cost of capital, the project will have a LOWER NPV than for Hoskins; while for firms with a lower cost of capital, the project will have a HIGHER NPV than for Hoskins.

• Short term vs long term project benefits for capital and NPV

  First, a short-term project (a project which most of its cash inflows come in relatively soon) may have a higher ranking under NPV if the cost of capital is high (NPV Decision rules mutually exclusive projects: Accept the project with the highest positive

• Cost of capital; Find NPV, IRR; which project to select

  347618 Calculate cost of capital; Find NPV, IRR; which project should a firm select? Problem 1 A firm has a capital structure which consists of 30% debt and 70% equity. The cost of debt is 10% and the cost of equity is 15%.

• Capital Budgeting

  WACC = 12% WACC = 18% NPV A = NPV A = NPV B = NPV B = At a cost of capital of 12%, Project A should be selected.

• Capital Budgeting : NPW and IRR methods

  Project A Cash outflow=Co=-$1000 Cash inflow=C1=$1150 Cost of capital=r=7% NPV of project A=Co+C1/(1+r)^1=-1000+1150/(1+7%)^1=$74.77 Project B Cash outflow=Co=-$500 Cash inflow=C1=$560 Cost of capital=r=7% NPV of project A=Co+C1/(1+r)^1=-500