38、An analyst gathered the following information about a company that expects to fund its capital budget without issuing any additional shares of common stock: Target (optimal) capital structure: | | Long-term debt | 50% | Preferred stock | 10% | Common equity | 40% | After-tax component costs: | | Long-term debt | 6% | Preferred stock | 10% | Retained earnings | 15% | Net present values of four independent projects: | | Warehouse project | $426 | Equipment project | $378 | Product line project | $0 | Inventory system project | -$185 |
If no significant size or timing differences exist among the projects and the projects all have the same risk as the company, the project with an internal rate of return closest to 10 percent is the: A. warehouse project. B. equipment project. C. product line project. D. inventory system project.
Correct answer = C
"Capital Budgeting," John D. Stowe and Jacques R. Gagné
"Cost of Capital," Yves Courtois, Gene C. Lai, and Pamela P. Peterson
2008 Modular Level I, Vol. 4, pp. 13-15, 19-21, 39
Study Sessions 11-44-d, 11-45-a
calculate and interpret the results using each of the following methods to evaluate a single capital project: net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, average accounting rate of return (AAR), and profitability index (PI);
calculate and interpret the weighted average cost of capital (WACC) of a company
The weighted average cost of capital for the company is 10%.
0.5(6%) + 0.1(10%) + 0.4(15%) = 10%. If the NPV is zero, the IRR is equal to the WACC.
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发表于 2008-5-27 12:29
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