Luv Yah, vice president of LabDiscount Stores has decided which of the following fiove projects should be accepted by her company: Project Investment cost Internal rate of return LOVE P200,000 100,000 175,000 100,000 150,000 26% p.a. 12% 18% 22% 16% Y The company finances all expansion with 30% debts and 70% equity capital. The cost of debt (before tax) is 10% for the first P100,000. The cost of any additional debt is 14%. The company's common stock is currently selling for P50 per share. Flotation costs are 15% of the selling price. The company's growth rate in earnings per share is anticipated to continue at a constant rate of 12% per year. The company's earnings per share this year was P5.50. The company pay out is 60%. The company has P170,000 of internal funds available for investment purposes. Required: a. What is the WACC for the first P100,000 of debt and P170,000 equity? b. Assuming debt is more than P100,000 land equity is more than P170,000, what is WACC? c. Which projects to be accepted? Why?

Luv Yah, vice president of LabDiscount Stores has decided which of the following fiove projects should be accepted by her company: Project Investment cost Internal rate of return LOVE P200,000 100,000 175,000 100,000 150,000 26% p.a. 12% 18% 22% 16% Y The company finances all expansion with 30% debts and 70% equity capital. The cost of debt (before tax) is 10% for the first P100,000. The cost of any additional debt is 14%. The company's common stock is currently selling for P50 per share. Flotation costs are 15% of the selling price. The company's growth rate in earnings per share is anticipated to continue at a constant rate of 12% per year. The company's earnings per share this year was P5.50. The company pay out is 60%. The company has P170,000 of internal funds available for investment purposes. Required: a. What is the WACC for the first P100,000 of debt and P170,000 equity? b. Assuming debt is more than P100,000 land equity is more than P170,000, what is WACC? c. Which projects to be accepted? Why?

Name: Complete solution for letters ABC please Luv Yah, vice president of La
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Description: Complete solution for letters ABC please Luv Yah, vice president of LabDiscount Stores has decided which of the followingfiove projects should be accepted by her company:ProjectInvestment costInternal rate of returnLOVEP200,000100,000175,000100,00015

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 5P

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