need part 1 & 2 want to take a look at Figure 12.4 on page 486. I do not expect
ID: 2656812 • Letter: N
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need part 1 & 2
want to take a look at Figure 12.4 on page 486. I do not expect you to send me a graph, but you might ind figure 12.4 helpful in figuring out what you need to know P-S The Acme Chip Manufacturing Company potato not computer) has a target capital structure of 40% debt and 60% common equity. They also have a 40% tax rate. They have three projects under consideration code named: Manny, Moe, and Jack. All are independent. The IRRs for the three projects Manny 16% ??? 13% Jack 10% All three projects have an initial investment of $1,000,000. Acme can borrow up to $2,000,000 from the bank at a quoted interest rate of 8%. They also have a reported $3,000,000 in Retained Earnings available for new idend they pay will be $400 per share. They also expect a growth rate of 5% on common equiry. New common Additional information: The next common stock div stock can be sold for 550.00 per share, with flotation costs of $10.00 per sha a. Which projects would you accept and why? Yes, I need to see some "number cra s will cost Acme $3 million, wiping out their retained earnings. So now a. Which projects would you accept and why? More number crunching pleaseExplanation / Answer
calculations: Cost of debt 4.80% 0.08*0.6 Cost of Retained Earnings 13% 4/50+0.05 Cost of common stock 15% 4/40+0.05 Part 1 a Manny project will be selected as retained is used to finance and IRR is more than 13 % b capital budget is $1000000 (1 Project) Part 2 WACC 10.92% 0.4*0.048+0.15*0.6 a Manny and Moe projects are accepted because IRR of each is greater than 10.92% b Total capital budget will be $2000000 (2 projects)
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