Question

A company wants to raise $50 million to finance the following capital expenditure projects, with their respective rates of return.
Project A ......... 8%
Project B ......... 9%
Project C ......... 10%
Project D ......... 11%
Project E ......... 12%
Project F ......... 13%
The various sources and cost of funds are as follows:


1. What is the company’s cost of capital?
2. What discount rate would you use during the capital budgeting process?
3. What would be the new discount rate if the cost of common shares and mortgage increase to 16% and 7%, respectively?
4. What projects would be approved with and without the change in the cost ofcapital?


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  • CreatedDecember 03, 2014
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