There are $100$ marks available for this assignment. This assignment is worth $10\%$ of your course grade. For Assignment $5,$ you will demonstrate your comprehension of the concepts covered in Modules $8$ and $9.$ One of the most important roles that just about everyone in a company can be involved is capital budgeting. What projects should we go ahead with or not go ahead with? Should we invest in a project which will improve our IT systems, improve our HR systems, or perhaps start a new division of the company? Even if you are not in a finance role, it is essential that you are able to speak the same language so that you can help to determine what is appropriate as well as champion your own projects effectively. The money for these projects has to come from somewhere and is related to the capital of the company. You will consider how much of the company should be financed by ongoing cash flow versus raising capital from equity holders or borrowing. Make sure to clearly explain your work so that your Open Learning Faculty Member can give feedback. You may get partial marks, even if your final answer is incorrect. You will submit a single Word document for this assignment, please review the Submission Guidelines. Instructions Complete the following in the order listed, and label your work. Parker Company is considering two mutually exclusive projects. Consider the information below, and provide the requested details. $(40$ marks$)$ Year Cash flow P$1$ Cash flow P$20(350,000)(50,000)145,00024,000265,00022,000365,00019,5004440,00014,600$ What is the payback period for each of these projects? Which project will the company choose if it applies the payback period decision rule? If the required rate of return is $15\%,$ what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule? If the required return is $15\%,$ what is the profitability index for each of these projects? Which project will the company choose if it applies the profitability index decision rule? What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct? Over what range of discount rates would the company choose Project $1?$ What range would cause the company to choose Project $2?$ What is the crossover rate at which the company be indifferent between these two projects? Explain. Which project should you choose? Why? Board Gear Corp. $($BG$)$ is considering manufacturing a new model of paddleboard. This project would require an investment of $$315,000$ plus an additional $$32,000$ in working capital. The equipment is in the $20\%$ CCA rate class, and BG has a tax rate of $25\%.$ BG thinks they can sell $200$ boards a year for $5$ years, after which the equipment will have a residual value equal to its undepreciated capital cost and will be sold for that amount. The working capital will be recovered. The boards will sell for $$1,800.$ Fixed yearly manufacturing costs are $$90,000,$ and variable costs are $$600$ per board. BG$$s cost of capital is $12\%.$ BG uses the accelerated investment incentive, so CCA in Year $1$ is $1\mathrm{.}5$ times the prescribed rate. Calculate the yearly cash flow and the NPV of the project. Should they go ahead with the project? Provide all calculations to support your decision. $(40$ marks$)$ Refer to the observed capital structures given in Table$16\mathrm{.}7$ below. What do you notice about the types of industries with respect to their average debt$/$equity ratios? Are certain types of industries more likely to be highly leveraged than others? What are some possible reasons for this observed segmentation? Do the operating results and tax history of the firms play a role? How about their future earnings prospects? Explain. $(10$ marks$)$ Hot$-$Shoe Hikers is an all$-$equity firm with a total market value of $$715,000.$ The firm has $46,000$ shares of stock outstanding. Management is considering issuing $$158,000$ of debt at an interest rate of $8\%$ and using the proceeds to repurchase shares. Before the debt issue, EBIT will be $$63,200.$ What is the EPS if the debt is issued? Ignore taxes. $(5$ marks$)$ A gym owner is considering opening a location on the other side of town. The new facility will cost $$1\mathrm{.}56$ million and will be depreciated on a straight$-$line basis over a $20-$year period. The new gym is expected to generate $$577,000$ in annual sales. Variable costs are $40\%$ of sales, the annual fixed costs are $$94,100,$ and the tax rate is $21\%.$ What is the operating cash flow? $(5$ marks$)$ Add submission