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1. For Project B, Calculate the expected net present value (NPV), internal rate of return (IRR), Profitability index (PI), return on capital employed (ROCE), Payback Period (PP) and discounted payback period (DPP)

1. For Project B, Calculate the expected net present value (NPV), internal rate of return (IRR), Profitability index (PI), return on capital employed (ROCE), Payback Period (PP) and discounted payback period (DPP)

Wave Co is considering investing $3.8 million in some projects. The finance manager has identified three possible options from three different product lines of the company for investment and you as a consultant have been assigned the job of appraising these projects for investment. The following information is available about the capital structure of the company: Authorized share capital, $0.50 each 103 million shares Issued share capital, $0.50 each 83 million shares 10% Bonds issued, $100 each 2,5 million bonds The current market price of a share is at $6 per share after the dividend has been just paid and next year's N dividend per share is expected to be 10 cents. The average annual dividend growth rate is at 16 percent. The bonds which are compounded annually are currently being traded in the market for a price of $102 per bond and redeemable in 3 years at par. 3 The projects identified are not divisible and may not be postponed until a future period. The annual tax rate is 30%, and it is paid one year in arrears. The details of the projects identified are as follows: Project B This project has been proposed by the Electronics Division for a new product and requires a plant costing $1,130,000. The scrap value of this plant is expected to be 15% of the initial investment at the end of fourth year. Market research has been already done at a cost of $4,500 to forecast demand for the new product. The estimated demand for the first year is 4,500 units and it is expected to increase by 25% and 20% in the second and third year respectively. However, the demand will decrease by 10% in the final year. The expected selling price is $480 per unit with 70% probability or it will be $360. Variable cost per unit is expected to be $280 with 60% probability or $160. Expected fixed cost in the first year will be $582,000 or $618,000 with 50% chance of each and it will increase by $55,000 annually Capital allowances would be available on the cost of the plant on straight-line basis over the four-year project life. The company plans to use a nominal after-tax cost of debt for the appraisal of this project. Wave Co is considering investing $3.8 million in some projects. The finance manager has identified three possible options from three different product lines of the company for investment and you as a consultant have been assigned the job of appraising these projects for investment. The following information is available about the capital structure of the company: Authorized share capital, $0.50 each 103 million shares Issued share capital, $0.50 each 83 million shares 10% Bonds issued, $100 each 2.5 million bonds ho The current market price of a share is at $6 per share after the dividend has been just paid and next year's dividend per share is expected to be 10 cents. The average annual dividend growth rate is at 16 percent. The bonds which are compounded annually are currently being traded in the market for a price of $102 per bond and redeemable in 3 years at par. The projects identified are not divisible and may not be postponed until a future period. The annual tax rate is 30%, and it is paid one year in arrears. The details of the projects identified are as follows: Project B This project has been proposed by the Electronics Division for a new product and requires a plant costing $1,130,000. The scrap value of this plant is expected to be 15% of the initial investment at the end of fourth year. Market research has been already done at a cost of $4,500 to forecast demand for the new product. The estimated demand for the first year is 4,500 units and it is expected to increase by 25% and 20% in the second and third year respectively. However, the demand will decrease by 10% in the final year. The expected selling price is $480 per unit with 70% probability or it will be $360. Variable cost per unit is expected to be $280 with 60% probability or $160. Expected fixed cost in the first year will be $582,000 or $618,000 with 50% chance of each and it will increase by $55,000 annually Capital allowances would be available on the cost of the plant on straight-line basis over the four-year project life. The company plans to use a nominal after-tax cost of debt for the appraisal of this project. Wave Co is considering investing $3.8 million in some projects. The finance manager has identified three possible options from three different product lines of the company for investment and you as a consultant have been assigned the job of appraising these projects for investment. The following information is available about the capital structure of the company: Authorized share capital, $0.50 each 103 million shares Issued share capital, $0.50 each 83 million shares 10% Bonds issued, $100 each 2,5 million bonds The current market price of a share is at $6 per share after the dividend has been just paid and next year's N dividend per share is expected to be 10 cents. The average annual dividend growth rate is at 16 percent. The bonds which are compounded annually are currently being traded in the market for a price of $102 per bond and redeemable in 3 years at par. 3 The projects identified are not divisible and may not be postponed until a future period. The annual tax rate is 30%, and it is paid one year in arrears. The details of the projects identified are as follows: Project B This project has been proposed by the Electronics Division for a new product and requires a plant costing $1,130,000. The scrap value of this plant is expected to be 15% of the initial investment at the end of fourth year. Market research has been already done at a cost of $4,500 to forecast demand for the new product. The estimated demand for the first year is 4,500 units and it is expected to increase by 25% and 20% in the second and third year respectively. However, the demand will decrease by 10% in the final year. The expected selling price is $480 per unit with 70% probability or it will be $360. Variable cost per unit is expected to be $280 with 60% probability or $160. Expected fixed cost in the first year will be $582,000 or $618,000 with 50% chance of each and it will increase by $55,000 annually Capital allowances would be available on the cost of the plant on straight-line basis over the four-year project life. The company plans to use a nominal after-tax cost of debt for the appraisal of this project. Wave Co is considering investing $3.8 million in some projects. The finance manager has identified three possible options from three different product lines of the company for investment and you as a consultant have been assigned the job of appraising these projects for investment. The following information is available about the capital structure of the company: Authorized share capital, $0.50 each 103 million shares Issued share capital, $0.50 each 83 million shares 10% Bonds issued, $100 each 2.5 million bonds ho The current market price of a share is at $6 per share after the dividend has been just paid and next year's dividend per share is expected to be 10 cents. The average annual dividend growth rate is at 16 percent. The bonds which are compounded annually are currently being traded in the market for a price of $102 per bond and redeemable in 3 years at par. The projects identified are not divisible and may not be postponed until a future period. The annual tax rate is 30%, and it is paid one year in arrears. The details of the projects identified are as follows: Project B This project has been proposed by the Electronics Division for a new product and requires a plant costing $1,130,000. The scrap value of this plant is expected to be 15% of the initial investment at the end of fourth year. Market research has been already done at a cost of $4,500 to forecast demand for the new product. The estimated demand for the first year is 4,500 units and it is expected to increase by 25% and 20% in the second and third year respectively. However, the demand will decrease by 10% in the final year. The expected selling price is $480 per unit with 70% probability or it will be $360. Variable cost per unit is expected to be $280 with 60% probability or $160. Expected fixed cost in the first year will be $582,000 or $618,000 with 50% chance of each and it will increase by $55,000 annually Capital allowances would be available on the cost of the plant on straight-line basis over the four-year project life. The company plans to use a nominal after-tax cost of debt for the appraisal of this project