Compute the IRR for Project F. The appropriate cost of capital

ubject: Business    / General Business
1-) WhackAmOle has 4 million shares of common stock outstanding, 3.0 million shares of preferred stock outstanding, and 95,000 bonds. Assume the common shares are selling for $60 per share, the preferred shares are selling for $49.00 per share, and the bonds are selling for 103 percent of par.

What would be the weights used in the calculation of WhackAmOle’s WACC? (Do not round intermediate calculations and round your answers to 2 decimal places.)

Equity weight %

Preferred stock weight %

Debt weight %

2-) Suppose that JB Cos. has a capital structure of 75 percent equity, 25 percent debt, and that its before-tax cost of debt is 10 percent while its cost of equity is 14 percent. Assume the appropriate weighted-average tax rate is 25 percent.

What will be JB’s WACC? (Round your answer to 2 decimal places.)

WACC %

3-) Suppose that B2B, Inc., has a capital structure of 37 percent equity, 17 percent preferred stock, and 46 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 15.0 percent, 12.0 percent, and 10.0 percent, respectively.

What is B2B’s WACC if the firm faces an average tax rate of 30 percent? (Round your answer to 2 decimal places.)

WACC %

4-) BetterPie Industries has 7 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 20,000 bonds. Assume the common shares are selling for $44 per share, the preferred shares are selling for $21.50 per share, and the bonds are selling for 98 percent of par.

What would be the weights used in the calculation of BetterPie’s WACC? (Do not round intermediate calculations and round your answers to 2 decimal places.)

Equity weight %

Preferred stock weight %

Debt weight %

________________________________________

5-) You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $20,300. Use of the truck will require an increase in NWC (spare parts inventory) of $2,300. The truck will have no effect on revenues, but it is expected to save the firm $20,100 per year in before-tax operating costs, mainly labor. The firm’s marginal tax rate is 35 percent.

What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

Year 0 1 2 3

FCF $

$

$

$

________________________________________

6-) KADS, Inc., has spent $340,000 on research to develop a new computer game. The firm is planning to spend $140,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $44,000. The machine has an expected life of three years, a $69,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $540,000 per year, with costs of $190,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 11 percent, and it expects net working capital to increase by $70,000 at the beginning of the project.

What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

Year 0 1 2 3

FCF $

$

$

$

________________________________________

7-) Compute the IRR for Project F. The appropriate cost of capital is 11 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Project F

Time: 0 1 2 3 4

Cash flow –$10,100 $3,850 $4,680 $2,020 $2,650

________________________________________

IRR %

Should the project be accepted or rejected?

Accepted

Rejected

???? Compute the payback statistic for Project B if the appropriate cost of capital is 11 percent and the maximum allowable payback period is three years. (Round your answer to 2 decimal places. If the project never pays back, then enter a “0” (zero).)

Project B

Time: 0 1 2 3 4 5

Cash flow –$12,700 $3,520 $4,520 $1,860 $0 $1,340

________________________________________

Payback years

Should the project be accepted or rejected?

Accepted

Rejected

9-) Compute the IRR static for Project E. The appropriate cost of capital is 8 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Project E

Time: 0 1 2 3 4 5

Cash flow –$1,300 $470 $570 $580 $360 $160

________________________________________

IRR %

Should the project be accepted or rejected?

Accepted

Rejected

10-) Compute the MIRR statistic for Project J if the appropriate cost of capital is 8 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Project J

Time: 0 1 2 3 4 5

Cash flow –$2,100 $680 $2,030 –$630 $630 –$210

________________________________________

MIRR %

Should the project be accepted or rejected?

Accepted

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