Create an IOS chart with the following investment alternatives: Alternative A ha

Question

Create an IOS chart with the following investment alternatives: Alternative A has an IRR of 8% and will add $10 million to the capital structure, while alternative B adds $12 million but returns 6.5%. C brings in 9.3% while costing $4 million, while D brings in 12% on $13.35 million. Finally, alternative investment E yields an IRR of 11.7% on $4 million in capital. The WACC is 7.75% with break points at $13 million and a new WACC of 8.12%. A final breakpoint occurs at $25 million boosting the WACC to 9.25%. Your banker has told you that beyond $25 million you will not be extended additional credit.

Explanation / Answer

if u will invest in A,B,D,E alternatives they will give the cash inflows. But if u will invest in project c it will give u cash outflow.. If u will invest at WACC i.e.,at 7.72 or 8.12 or 9.25 you will neither gain any inflow nor their will be any outflows.These alternatives are given so that u can judge which is the beneficial one and te most beneficial is D. If you choose alternative D you will get return 12% and inflow 13.35million ,at alternative a you will get 8% with inflow 10 million,at alternative B you will get 6.5% with 12 million inflow and Alternative E you will get 11.7% with inflow 4 million and at alternative C you will get 9.3% with cash outflow 4 million. so, D is more preferable....

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