Your company applies a discount rate of 7.5% to all projects. Assuming you are the financial investor
Question:
Your company applies a discount rate of 7.5% to all projects. Assuming you are the financial investor of the company, fulfil the following duties:
a. Find new lines of investment. Two investments are proposed: Project C with an initial outlay of $50,000 and future inlays of $20,000 for the next five years; and Project D with an initial outlay of $300,000 and inlays of $130,000 for the next three years. Both are mutually exclusive. Present your investment decision to the board of directors of your company justifying why your decision wouldn’t be the same if both projects would be non-mutually exclusive.
b. Establish an evaluation criterion for future business opportunities considering the capital structure of your company (summarized in the table below).
c. Determine the convenience of the following projects given the previous determined criterion: a mineral company estimated to have an IRR of 11%; a famous hot pot soup producer with an estimated IRR of 10%; a crypto-investment company with an IRR of 7%. Present your results based on the information of the projects provided.
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe