26) Company E is considering two contradictory projects. The amount flows in the projects are as follows:

Year| Project A| Project W

0| -$2, 000, 000| -$2, 500, 000

1| 500, 000|

2| 500, 000|

3| 500, 000|

4| 500, 000|

5| 500, 000|

6| 500, 000|

7| 500, 000| 5, 600, 000

a. Compute the NPV and IRR to get the above two projects, if, perhaps a 13% required rate of come back.

b. Discuss the ranking conflict.

c. What decision should be manufactured regarding the two of these projects?

Response:

a. NPV of the = $211, 305 NPV of W = $401, 592. sixty four

IRR of A = of sixteen. 33% IRR of B = 15. 99%

b. The later on cash flow of B triggers its lower IRR although it has the higher NPV.

c. B must be accepted because it is the mutually exclusive project with the highest positive NPV. Keywords: NPV, IRR

AACSB: Discursive skil

4) Tangshan Exploration Company must choose it is optimal capital structure. At present, the company has a 40 percent debt ratio and the firm needs to generate a dividend next year of $4. fifth 89 per reveal and dividends are expand at a consistent rate of 5 percent to get the near future. Stockholders at the moment require a 15. 89 percent return issues investment. Tangshan Mining is definitely considering changing its capital structure if this would advantage shareholders. The firm estimations that whether it increases the financial debt ratio to 50 percent, it will increase the expected dividend to $5. 24 every share. Due to additional influence, dividend progress is anticipated to increase to six percent and this growth will be sustained consistently. However , because of the added risk, the required return demanded by stockholders increases to 14. 34 percent.

(a)What is definitely the value per share to get Tangshan Exploration under the current capital structure?

(b)What may be the value per share for Tangshan Mining under the suggested capital structure?

(c)Should Tangshan Mining associated with capital framework change? Clarify.

Answer:

(a)The current price of Tangshan Exploration...