Finance Case
The Venture Capital Division of Boeing has four projects on the table with three additional leverages of debt. As the financial analyst for the division I was given the task of evaluating the four capital budgeting projects. After evaluating each project I will recommend which project will bring the most value to shareholders and the firm.
What is the cost of equity for each project at 0, 20%, and 50% leverage?
From the information provided the cost of equity at 0, 20%, and 50% leverage was calculated for each project. For project A at 0% leverage has a 15.2% cost of equity, at 20% leverage the project has a 17.51% cost of equity, at 50% it leverage has 24.44% cost of equity. For project B at 0% leverage has a 15.2% cost of equity, at 20% leverage has a 17.51% cost of equity, at 50% leverage has 24.44% cost of equity.
Cost of Equity
Leverage
Project A
Project B
Project C
Project D
0%
15.2%
15.2%
16.4%
14%
20%
17.51%
17.51%
18.92%
16.1%
50%
24.44%
24.44%
26.48%
22.4%
Do you think the CAPM model is an appropriate way to calculate the cost of equity for these projects? Why or why not. The CAMP model is an appropriate way to calculate the cost of equity for these projects because of the information provided. The information provided is the beta, the risk-free rate, and market risk premium
Which, if any, of the projects are unacceptable and why? Include on ONE graph the NPV profile for each project. Project D is unacceptable
Rank the projects that are acceptable, according to your criterion of choice. According to my criterion I will rank the projects that are acceptable. As previously stated project D is unacceptable. Project B would be the number one choice, project C would follow, and project A would be the last choice.
Rank
Projects
1
Project B
2
Project C
3
Project A
4 Unacceptable
Project D
Which project do you recommend and why? Explain why each of the projects not chosen was rejected. After
What is the cost of equity for each project at 0, 20%, and 50% leverage?
From the information provided the cost of equity at 0, 20%, and 50% leverage was calculated for each project. For project A at 0% leverage has a 15.2% cost of equity, at 20% leverage the project has a 17.51% cost of equity, at 50% it leverage has 24.44% cost of equity. For project B at 0% leverage has a 15.2% cost of equity, at 20% leverage has a 17.51% cost of equity, at 50% leverage has 24.44% cost of equity.
Cost of Equity
Leverage
Project A
Project B
Project C
Project D
0%
15.2%
15.2%
16.4%
14%
20%
17.51%
17.51%
18.92%
16.1%
50%
24.44%
24.44%
26.48%
22.4%
Do you think the CAPM model is an appropriate way to calculate the cost of equity for these projects? Why or why not. The CAMP model is an appropriate way to calculate the cost of equity for these projects because of the information provided. The information provided is the beta, the risk-free rate, and market risk premium
Which, if any, of the projects are unacceptable and why? Include on ONE graph the NPV profile for each project. Project D is unacceptable
Rank the projects that are acceptable, according to your criterion of choice. According to my criterion I will rank the projects that are acceptable. As previously stated project D is unacceptable. Project B would be the number one choice, project C would follow, and project A would be the last choice.
Rank
Projects
1
Project B
2
Project C
3
Project A
4 Unacceptable
Project D
Which project do you recommend and why? Explain why each of the projects not chosen was rejected. After