Your second assignment requires you to utilize WACC
As to choose the best investment given the following criteria:
Requirement 1. The project only lasts five years.
Requirement 2. You must finance the project by an equal split between debt and equity funding.
Requirement 3. The project will require $35,000 worth of stock and $35,000 worth of debt
Further, the market imposes the following constraints:
The tax rate is 35%.
The risk free rate is 5%.
You have two investment opportunities
Investment 1. A slowly growing project.
Investment 2. A slowly declining project.
The cash flows and rates are as follows:
Annual Cash Flows
Outlay – 25,000 – 30,000
1 $100,000.00 $115,000.00
2 $105,000.00 $109,523.81
3 $110,250.00 $104,308.39
4 $115,762.50 $99,341.32
5 $121,550.63 $94,610.78
Equity 7.00% 12.00%
Debt 12.00% 7.00%
The table lists the market premium for the equity rates.
Calculate the WACC for both investment. Calculate the NPV for investments discounted at their
respective WACCs. Take a stance on which investment provides the best or worst opportunity.
You may want to use Excel’s NPV function to figure NPV
Option 1.Argue for or against the best or worst investment choices.
Option 2. Argue for or against the acceptance of a rejected investment.
Option 3.Argue for or against the acceptance of both investments.
The paper should be 5 pages and should cite approximately three peer reviewed full text journal articles retrieved from
ProQuest, BE & T, InfoTrac, and Academic OneFile. Your paper should integrate at least the following elements:
· The presentation of a firm position regarding your stance or theory.
· An offering of a strong position using evidence based argumentation.
· An address of opposing points as to present a well rounded argument controlling personal
biases and strengthening your argument while diminishing the opposition’s points.
·An effort to use evidence and argument flow as to instill a sense of trust into your reader.
Do you feel stuck while planning your argument? If so, then try jumpstarting the
assignment by using
the following steps:
1.Choose a stance you believe in and write down why you believe in the stance.
·Ask yourself the following questions:
·Who is my audience and which points will they be interested in?
·What kind of tone am I assuming for my argument?
·Does my tone match the audience? (If not, consider changing your tone.)
·Am I engaging in a fallacy or illogical stance? (Make sure you make sense or no one
will believe you!)
·Would someone agree or disagree with me given my points? (Argue w
ith yourself as to find the strengths and weaknesses of your stance.)
·Am I making a moral or cultural argument? (If so, you may need to reconsider a stance able to utilize scholarly literature.)
·Can I research my stance? (If not, you may need to consider a new stance.)
2.Research as to find the evidence needed to support your stance or theory. Seek the needed facts, quotes, and existing research you can use for your argument
3.Outline and write the essay starting with the evidence -supported defense of your points and
slowly transition into an address of opposing points.
4.Provide a brief summary of the argument as to conclude the essay