Since the oil price is rising steadily for last few months even in this COVID Pandemic...

 

Transcribed Image Text:

Since the oil price is rising steadily for last few months even in this COVID Pandemic situation, Imperial Oil is considering the following projects in their Fort MacMurray oil sand operations. Projec Since the oil price is rising steadily for last few months even in this COVID Pandemic situation, Imperial Oil is considering the following projects in their Fort MacMurray oil sand operations. Project. Cost. Expected Return N $200,000 16% $300,000 15% $500,000 13.75% $200,000 12.50% Imperial has estimated that it can raise fund by issuing bond (debt financing) at cost of 10% Tax rate is 30%. It can issue preferred stock that-pays a constant dividend of $5 per year at a price of $49 per share. Also, a common stock currently sells for $36 per share and next dividend expected is $3.50 per share. The dividend is expected to grow at a constant rate of 6% per year. Morrison has $3,750,000 common equity, $750,000 debt and $500,000 preferred stock. 1) Calculate the cost of each capital component? (6 Marks) Calculate WACC? (4 Marks) 1) Which of the above project will Imperial choose and why? (3 Marks) b. Cenovus Energy is evaluating two of its all sands projects for it's 2022 year's capital budget. It WACC is 15%. The cash flow of the projects are as follows: x Y YR Cashflow YR Cashflow 0000000 0 1910,1100.00 1 10,000.00 1 2800.00 215,000.00 2 25,000.00 3 000.00 3 31,400.00 100.00 9.000.00 20,000.00 32,500 200 " Calculate NPV and payback period of project "X" and "Y". 110 Marks-pls show your calculation If the projects are mutually exclusive which project will Cenovus choose and why? (2 marks) Since the oil price is rising steadily for last few months even in this COVID Pandemic situation, Imperial Oil is considering the following projects in their Fort MacMurray oil sand operations. Projec Since the oil price is rising steadily for last few months even in this COVID Pandemic situation, Imperial Oil is considering the following projects in their Fort MacMurray oil sand operations. Project. Cost. Expected Return N $200,000 16% $300,000 15% $500,000 13.75% $200,000 12.50% Imperial has estimated that it can raise fund by issuing bond (debt financing) at cost of 10% Tax rate is 30%. It can issue preferred stock that-pays a constant dividend of $5 per year at a price of $49 per share. Also, a common stock currently sells for $36 per share and next dividend expected is $3.50 per share. The dividend is expected to grow at a constant rate of 6% per year. Morrison has $3,750,000 common equity, $750,000 debt and $500,000 preferred stock. 1) Calculate the cost of each capital component? (6 Marks) Calculate WACC? (4 Marks) 1) Which of the above project will Imperial choose and why? (3 Marks) b. Cenovus Energy is evaluating two of its all sands projects for it's 2022 year's capital budget. It WACC is 15%. The cash flow of the projects are as follows: x Y YR Cashflow YR Cashflow 0000000 0 1910,1100.00 1 10,000.00 1 2800.00 215,000.00 2 25,000.00 3 000.00 3 31,400.00 100.00 9.000.00 20,000.00 32,500 200 " Calculate NPV and payback period of project "X" and "Y". 110 Marks-pls show your calculation If the projects are mutually exclusive which project will Cenovus choose and why? (2 marks)