Dwyer/Morris pharmaceutical is considering two major investments and the respective cash flows are as follows:
Both projects will be financed using funds generated from:
period project 1 cash flow project2 CF
0 (100,000) (100,000)
1 10,000 50,000
2 20,000 50,000
3 60,000 10,000
4 70,000 5,000
5 80,000 5,000
i. $1000,000 $1 Ordinary shares with a market value of $2.00 per share and an estimated cost of 22%
ii. $500,000 $1 Preference shares with a market value of 80 cents and an estimated cost of 15%
iii. $1 million Debenture stock with a market value of $80 per 100 nominal value and an estimated cost of 9%
You are required to:
Calculate the Weighted average cost of capital 9 marks
Calculate the Net Present value of each project 11 marks
Question 2
A project has an initial cost of $60 000, expected net cash inflows of $12,000 per year for 5 years, and a cost of capital of 12%.
What is the project’s MIRR? 10 marks