INTERMEDIATE FINANCIAL MANAGEMENT

INDIVIDUAL ASSIGNMENT
General Instruction:
 The assignment will be due September 15, 2023.
 Plagiarism/coping/cheating of any kind will not be tolerated.
 Format of the paper: Font: times new roman , 12 point; margin 1”, line spacing: 1.5”
1. Suppose you are evaluating a project that has the following cash flow projections:
Year | Cash Flow
--------|------------
0 | -$100,000
1 | $20,000
2 | $30,000
3 | $40,000
4 | $50,000
The cost of capital for the project is 10%.
a) Calculate the Net Present Value (NPV) of the project.
b) Determine the Internal Rate of Return (IRR) of the project.
c) Calculate the Payback Period of the project.
d) Determine the Profitability Index (PI) of the project.
2. GHI Corporation is considering implementing a new capital budgeting system. The system
has an initial cost of $500,000 and is expected to generate annual cost savings of $100,000
per year for the next 5 years. Using the payback period method, calculate the payback period
for the capital budgeting system, and discuss whether or not the system is a good investment
for GHI Corporation.
3. ABC Corporation is looking to expand their operations, and they need to raise $10 million in
funding to do so. They are considering issuing either debt or equity to fund the expansion.
Discuss the advantages and disadvantages of each option, and make a recommendation for
which one ABC Corporation should choose.
4. A company has a capital structure consisting of 40% debt, 50% common equity, and 10%
preferred equity. The company's before-tax cost of debt is 8%, the cost of preferred equity is
10%, and the cost of common equity is 12%. Calculate the company's weighted average cost
of capital (WACC)
5. A company has a preferred stock outstanding with an annual dividend of $7.50, and a
required rate of return of 10%. If the company suddenly decided to reduce the dividend to $6
per share, what would happen to the value of the preferred stock?