a.Compute the NPV and IRR for the above two projects, assuming a 13% required rate of return.
b.Discuss the ranking conflict.
c.What decision should be made regarding these two projects?
Answer:
a.NPV of A = $211,305 NPV of B = $401,592.64
IRR of A = 16.33% IRR of B = 15.99%
b. The later cash flow of B causes its lower IRR even though it has the higher NPV.
c.B should be accepted because it is the mutually exclusive project with the highest positive NPV. Keywords: NPV, IRR
AACSB: Analytic skil

4) Tangshan Mining Company must choose its optimal capital structure. Currently, the firm has a 40 percent debt ratio and the firm expects to generate a dividend next year of $4.89 per share and dividends are grow at a constant rate of 5 percent for the foreseeable future. Stockholders currently require a 10.89 percent return on their investment. Tangshan Mining is considering changing its capital structure if it would benefit shareholders. The firm estimates that if it increases the debt ratio to 50 percent, it will increase its expected dividend to $5.24 per share. Because of the additional leverage, dividend growth is expected to increase to 6 percent and this growth will be sustained indefinitely. However, because of the added risk, the required return demanded by stockholders will increase to 11.34 percent.

(a)What is the value per share for Tangshan Mining under the current capital structure?
(b)What is the value per share for Tangshan Mining under the proposed capital structure?
(c)Should Tangshan Mining make the capital structure change? Explain.
Answer:
(a)The current price of Tangshan Mining...

...INTERNALRATE OF RETURN
Many companies wants to have a return on their investment in a few years and begin to evaluate their projects optimistically calculating an internalrate of real return not yielding results in the end. This does not end up being expected by the companies; According to the article the authors John C. Kelleher and Justin J. MacCormack . They suggest that there is a...

...InternalRate of Return
Meaning of Capital Budgeting
Capital budgeting can be defined as the process
of analyzing, evaluating, and deciding whether
resources should be allocated to a project or
not.
Capital budgeting addresses the issue of
strategic long-term investment decisions.
Process of capital budgeting ensure optimal
allocation of resources and helps management
work towards the goal of shareholder wealth
maximization....

...InternalRate of ReturnInternalRate of Return (IRR)
Calculation of the true interest yield expected from an investment. Explanation of InternalRate of Return. What is InternalRate of Return? Definition The InternalRate of Return (IRR) is the discount rate that...

...InternalRate of Return
In investment decision analysis you may need to calculate internalrate of return. “Internalrate of return (IRR) is the discount rate that gives the project a zero NPV” (McLaney, 2006). It is a good choice to use for investment projects. There is a formula for the internalrate of...

...financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and Z. Currently, the firm earns 12% on its investments, which have a risk index of 6%. The expected return and expected risk of the investments are as follows:
|Investment |Expected return |Expected risk |
| | |index |
|X |14% |7% |
|y |12...

...building from Frank Thomas to produce his required 15% after-tax return?
In order for Frank Thomas to earn his 15% after tax return, Harmonic must buyback the building for just over $11M. The calculations can be seen in the chart below.
3) What proportion of the terminal value must be distributed to Comet Capital to produce its required 25% before-tax rate of return?
In order for Comet Capital to produce its 25% before tax...

...ch10
Student: ___________________________________________________________________________
1.
The capital gains yield plus the dividend yield on a security is called the:
A. geometric return.
B. average period return.
C. current yield.
D. total return.
2.
The expected return on a security in the market context is:
A. a negative function of execs security risk.
B. a positive function of the beta.
C. a negative function...

...Accounting rate of return
Accounting rate of return (also known as simple rate of return) is the ratio of estimated accounting profit of a project to the average investment made in the project. ARR is used in investment appraisal.
Formula
Accounting Rate of Return is calculated using the following formula:
ARR =
Average Accounting Profit
Average Investment
Average...

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