Alpha Geek

(8)

$10/per page/Negotiable

About Alpha Geek

Levels Tought:
University

Expertise:
Accounting,Algebra See all
Accounting,Algebra,Architecture and Design,Art & Design,Biology,Business & Finance,Calculus,Chemistry,Communications,Computer Science,Environmental science,Essay writing,Programming,Social Science,Statistics Hide all
Teaching Since: Apr 2017
Last Sign in: 438 Weeks Ago, 5 Days Ago
Questions Answered: 9562
Tutorials Posted: 9559

Education

  • bachelor in business administration
    Polytechnic State University Sanluis
    Jan-2006 - Nov-2010

  • CPA
    Polytechnic State University
    Jan-2012 - Nov-2016

Experience

  • Professor
    Harvard Square Academy (HS2)
    Mar-2012 - Present

Category > Business & Finance Posted 14 May 2017 My Price 7.00

Cost of Capital Net Present Value

 

Problem 14-44         Cost of Capital, Net Present Value

Leakam Company’s product engineering department has developed a new product that has a 3-year life cycle. Production of the product requires development of a new process that requires a current

$100,000 capital outlay. The $100,000 will be raised by issuing $60,000 of bonds and by selling new stock for $40,000. The $60,000 in bonds will have net (after-tax) interest payments of $3,000 at the end of each of the 3 years, with the principal being repaid at the end of Year 3. The stock issue car- ries with it an expectation of a 17.5% return, expressed in the form of dividends at the end of each year ($7,000 in dividends is expected for each of the next 3 years). The sources of capital for this investment represent the same proportion and costs that the company typically has. Finally, the pro- ject will produce after-tax cash inflows of $50,000 per year for the next 3 years.

Required:

1.       Compute the cost of capital for the project. (Hint: The cost of capital is a weighted average of the two sources of capital where the weights are the proportion of capital from each source.)

2.        CONCEPTUAL CONNECTION Compute the NPV for the project. Explain why it is not necessary to subtract the interest payments and the dividend payments and appreciation from the inflow of $50,000 in carrying out this computation.

 

 

 
 

Answers

Alpha Geek
(8)
Status NEW Posted 14 May 2017 11:05 AM My Price 7.00

-----------

Attachments

file 1494763257-Answer.docx preview (332 words )
P-----------rob-----------lem----------- 14------------44----------- Â----------- Â ----------- Â----------- Â ----------- Â-----------  C-----------ost----------- of----------- Ca-----------pit-----------al,----------- Ne-----------t P-----------res-----------ent----------- Va-----------lue----------- L-----------eak-----------am -----------Com-----------pan-----------yâ€-----------™s -----------pro-----------duc-----------t e-----------ngi-----------nee-----------rin-----------g d-----------epa-----------rtm-----------ent----------- ha-----------s d-----------eve-----------lop-----------ed -----------a n-----------ew -----------pro-----------duc-----------t t-----------hat----------- ha-----------s a----------- 3------------yea-----------r l-----------ife----------- cy-----------cle-----------. P-----------rod-----------uct-----------ion----------- of----------- th-----------e p-----------rod-----------uct----------- re-----------qui-----------res----------- de-----------vel-----------opm-----------ent----------- of----------- a -----------new----------- pr-----------oce-----------ss -----------tha-----------t r-----------equ-----------ire-----------s a----------- cu-----------rre-----------nt ----------- $1-----------00,-----------000----------- ca-----------pit-----------al -----------out-----------lay-----------. T-----------he -----------$10-----------0,0-----------00 -----------wil-----------l b-----------e r-----------ais-----------ed -----------by -----------iss-----------uin-----------g $-----------60,-----------000----------- of----------- bo-----------nds----------- an-----------d b-----------y s-----------ell-----------ing----------- ne-----------w s-----------toc-----------k f-----------or -----------$40-----------,00-----------0. -----------The----------- $6-----------0,0-----------00 -----------in -----------bon-----------ds -----------wil-----------l h-----------ave----------- ne-----------t (-----------aft-----------er------------tax-----------)
Not Rated(0)