Which project I should invest?

Far Out Tech (FOT) has a debt ratio of 0.3 and it considers this to be its optimal capital structure. FOT has no preferred stock. FOT has analyzed four capital projects for the coming year as follows:

ProjectNet InvestmentIRR
1$3,000,00013.5%
2$1,500,00018.0%
3$2,000,00012.6%
4$1,600,00016.0%

FOT expects to earn $2.7 million after tax next year and pay out $700,000 in dividends. Dividends are expected to be $1.05 a share during the coming year and are expected to grow at a constant rate of 10 percent a year for the foreseeable future. The current market price of FOT stock is $22 and up to $2 million in new equity can be raised for a flotation cost of 10 percent. If more than $2 million is sold then the flotation cost will be 15 percent. Up to $2 million in debt can be sold at par with a coupon rate of 10 percent. Any debt over $2 million will carry a 12 percent coupon rate and be sold at par. If FOT has a marginal tax rate of 40 percent, in which projects should it invest?
a.1, 2, 3, & 4
b.2
c.1, 2, and 4
d.2 and 4

Project 2 has the lowest value (lowest risk) and highest payout, I think (b) is a winner.

Tags

　　Seed Capital 　　Return Investment 　　Real Money 　　Real Estate Investment 　　Raise Capital 　　Property Investment 　　Profitable Investments 　　Private Investment

Related information

I am having problem calculating how many shares did it sell and at what price ?

The word "surplus" is improper. I'll assume the amount is paid in capital in excess of par. In that case the par value of the shares issued was $1,000,000. So the company issued 1,66...

Which projects should it invest?

D.2&4

...

I am going to spend $9000 for business travel (hotel/dining). Should I open a rewards credit card? Which one?

I would definitely get a rewards type of credit card and if you are purchasing the plane tickets yourself I would advise one that earns you miles to save on future trips. Before you do this though...

Placing of new shares?

In the US, the SEC grants the right to sell shares on the open market, and they will grant a specific number of shares at a specific par value (usually very low). The company must apply to the S...

How can I start an online bridal shop?

Associations may be a good avenue to explore. These organizations will address many of the thoughts, questions and concerns you'll inevitably have as well as many you haven't anticipated ...

How come my credit report only shows one credit score?

You should be able to ask Capitol One to report your scores to the various credit reporting agency to give you another score on your record. Contact their customer service department for help.

...

Would You Support / Oppose These Tax Reforms?

Support! Sounds like fair progressive Keynesian taxation. A similar structure, though with higher taxes for the wealthiest, existed after World War II and before Reagan and it brought the highest ...

It's All In The Name?

I'd try this different approach. Invite over about ten of your best friends for a wine tasting party at your house early in the evening and make sure you have a designated driver or two. After...