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linda_us, Master's Degree
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Capital Budgeting Case

Customer Question

I searched for my assignment online and this web page came up. I believe it has been previously completed
Submitted: 2 years ago.
Category: Single Problem
Customer: replied 2 years ago.
Capital Budgeting Case � From the given case information, calculate the firm�s WACC then use the WACC to calculate NPV and evaluate IRR for proposed capital budgeting projects with a capital rationing constraint. After you choose the project(s), recalculate the capital structure based on the assumption that the project(s) are implemented and determine if the new capital structure will signal the investors either positively, negatively, or not at all.Case information for business report:North Sea Oil has compiled the following data relative to current costs of its basic sources of external capital, long-term debt, preferred stock, and common stock equity.Source of Capital CostLong-Term Debt 7%Preferred Stock 19%Common Stock and Retained Earnings 20%Below are the company�s target capital structure proportions used in calculating the weighted average cost of capital.Source of Capital Target Capital StructureLong Term Debt .25Preferred Stock .25Common Stock and Retained Earnings .50North Sea Oil has the opportunity to invest in the following projects:Project A Project BInitial Investment $130,000 $85,000Year Cash Inflows Cash Inflows1 $25,000 $40,0002 $35,000 $35,0003 $45,000 $30,0004 $50,000 $10,0005 $55,000 $5,000Using WACC to calculate the NPV and evaluate the IRR, which project should be implemented? (You may also wish to include the Payback to further support your answer).Assuming the project(s) is implemented using equity financing, the capital structure changes to:Source of Capital New Capital Structure after project implementationLong-Term Debt .20Preferred Stock .20Common Stock and Retained Earnings .60Calculate the New WACC and briefly discuss in your report if this new WACC and capital structure might signal the market and investors.
Expert:  F. Naz replied 2 years ago.
I am sending you the offer please accept it so I can provide you the answer and also mention your deadline, thanks.
Customer: replied 2 years ago.
No thank you. Way too much. Site said $33. And I see that you previously did this for another student.
Expert:  F. Naz replied 2 years ago.
Please provide the link for my previous answer if you have thanks.