Homework 6A

Question 1 1

/ 1 point

Find the Payback period for the following project:

Project X

Initial Outlay

$8,170

Year 1

$3,520

Year 2

$3,690

Year 3

$3,640

Year 4

$5,930

The answer should be calculated to two decimal places.

Question 2 1

/ 1 point

Find the Payback period for the following project:

Project Y

Initial Outlay

$18,700

Year 1

$5,710

Year 2

$5,170

Year 3

$5,810

Year 4

$6,800

The answer should be calculated to two decimal places.

Question 3 1

/ 1 point

Find the Discounted Payback period for the following

project. The discount rate is 9%

Project X

Initial Outlay

$8,876

Year 1

$3,368

Year 2

$3,527

Year 3

$5,199

Year 4

$7,892

Round the answer to two decimal places.

Question 4 1

/ 1 point

Find the Discounted Payback period for the following

project. The discount rate is 10%

Project X

Initial Outlay

$17,779

Year 1

$5,230

Year 2

$5,135

Year 3

$5,527

Year 4

$8,502

Round the answer to two decimal places.

Homework 6B

Question 1 1

/ 1 point

Find the net present value (NPV) for the following series of

future cash flows, assuming the company’s cost of capital is 10.69 percent. The

initial outlay is $337,004.

Year 1: 176,404

Year 2: 162,379

Year 3: 182,907

Year 4: 191,457

Year 5: 158,843

Round the answer to two decimal places.

Question 2 1

/ 1 point

Tall Trees, Inc. is using the net present value (NPV) when

evaluating projects. You have to find the NPV for the company’s project,

assuming the company’s cost of capital is 8.81 percent. The initial outlay for

the project is $306,247. The project will produce the following after-tax cash

inflows of

Year 1: 193,495

Year 2: 35,761

Year 3: 121,492

Year 4: 168,749

Round the answer to two decimal places.

Answer:

116,475.49 Correct

Response

Question 3 1

/ 1 point

Green Landscaping, Inc. is using net present value (NPV)

when evaluating projects. Green Landscaping’s cost of capital is 14.51 percent.

What is the NPV of a project if the initial costs are $1,718,110 and the

project life is estimated as 12 years? The project will produce the same

after-tax cash inflows of $679,470 per year at the end of the year.

Round the answer to two decimal places.

Question 4 1

/ 1 point

A project has an initial outlay of $1,780. It has a single

payoff at the end of year 2 of $7,816. What is the net present value (NPV) of

the project if the company’s cost of capital is 13.67 percent?

Round the answer to two decimal places.

Homework 6C

Question 1 1

/ 1 point

A project has an initial outlay of $1,586. It has a single

cash flow at the end of year 4 of $5,502. What is the internal rate of return

(IRR) for the project?

Round the answer to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

Question 2 1

/ 1 point

Deep Waters, Inc. is using the internal rate of return (IRR)

when evaluating projects. Find the IRR for the company’s project. The initial

outlay for the project is $443,300. The project will produce the following

after-tax cash inflows of

Year 1: 187,900

Year 2: 59,200

Year 3: 168,400

Year 4: 164,900

Round the answer to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

You should use Excel or financial calculator.

Question 3 1

/ 1 point

Find the internal rate of return (IRR) for the following

series of future cash flows. The initial outlay is $535,800.

Year 1: 187,100

Year 2: 184,200

Year 3: 199,700

Year 4: 158,900

Year 5: 125,600

Round the answer to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

You should use Excel or financial calculator.

Question 4 1

/ 1 point

Find the modified internal rate of return (MIRR) for the

following series of future cash flows if the company is able to reinvest cash

flows received from the project at an annual rate of 11.48 percent.The initial

outlay is $471,100.

Year 1: $128,700

Year 2: $124,900

Year 3: $165,900

Year 4: $138,300

Year 5: $183,300

(Write the percentage sign in the “units” box)

Question 5 1

/ 1 point

Tall Trees, Inc. is using the modified internal rate of

return (MIRR) when evaluating projects. The company is able to reinvest cash

flows received from the project at an annual rate of 9.92 percent. What is the MIRR of a project if the initial

costs are $1,536,800 and the project life is estimated as 9 years? The project

will produce the same after-tax cash inflows of 596,200 per year at the end of

the year.

(Write the percentage sign in the “units” box)

Homework 6D

Question 1 1

/ 1 point

Find the profitability index (PI) for the following series

of future cash flows, assuming the company’s cost of capital is 5.64 percent.

The initial outlay is $448,761.

Year 1: $138,173

Year 2: $170,558

Year 3: $140,342

Year 4: $125,038

Year 5: $158,141

Round the answer to two decimal places.

Question 2 1

/ 1 point

Gold Mining, Inc. is using the profitability index (PI) when

evaluating projects. Gold Mining’s cost of capital is 8.94 percent. What is the

PI of a project if the initial costs are $2,317,630 and the project life is

estimated as 10 years? The project will produce the same after-tax cash inflows

of $568,518 per year at the end of the year.

Round the answer to two decimal places.

Question 3 1

/ 1 point

Good Morning Food, Inc. is using the profitability index

(PI) when evaluating projects. You have to find the PI for the company’s

project, assuming the company’s cost of capital is 13.53 percent. The initial

outlay for the project is $368,248. The project will produce the following

end-of-the-year after-tax cash inflows of

Year 1: $199,141

Year 2: $26,278

Year 3: $451,548

Year 4: $381,631

Round the answer to two decimal places.

Question 4 1

/ 1 point

A project has an initial outlay of $4,057. It has a single

payoff at the end of year 10 of $9,964. What is the profitability index (PI) of

the project, if the company’s cost of capital is 7.43 percent?

Round the answer to two decimal places.

Homework 6E

Before-Tax cost of debt financing

Question 1 1

/ 1 point

Black Hill Inc. sells $100 million worth of 20-year to

maturity 13.12% annual coupon bonds. The net proceeds (proceeds after flotation

costs) are $981 for each $1,000 bond. What is the before-tax cost of capital

for this debt financing?

(Write the percentage sign in the “units” box)

You should use Excel or financial calculator.

After-Tax cost of debt financing

Question 2 1

/ 1 point

Great Seneca Inc. sells $100 million worth of 25-year to

maturity 6.93% annual coupon bonds. The net proceeds (proceeds after flotation

costs) are $975 for each $1,000 bond. The firm’s marginal tax rate is 35%. What

is the after-tax cost of capital for this debt financing?

(Write the percentage sign in the “units” box)

You should use Excel or financial calculator.

Homework 6F

Question 1 1

/ 1 point

Calculate the cost of new common equity financing of stock Q

using Gordon Model

Round the answers to two decimal places in percentage form

(Write the percentage sign in the “units” box)

Last Year Dividend

Growth Rate of Dividends

Selling Price of Stock

Floatation Costs

Cost of Common Equity

Stock Q

$3.89

5%

$58.89

$2.82

?

Question 2 0 / 1 point

Last year the Black Water Inc. paid dividends $3.95.

Company’s dividends are expected to grow at an annual rate of 3% forever. The

company’s common stock is currently selling on the market for $55.97. The

investments banker will charge flotation costs $4.91 per share. Calculate the

cost of common equity financing using Gordon Model.

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box).

Question 3 1

/ 1 point

Paul Sharp is CFO of Fast Rocket Inc. He tries to determine

the cost of equity financing for his company. The stock has a beta of 2.40.

Paul estimated that the market return is 7.38%. The current rate for 10-year

Treasury Bonds is 3.04%. Calculate cost of common equity financing using CAPM –

SML formula.

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

Question 4 1

/ 1 point

Nature Food Inc. needs to estimate the cost of financing on

preferred stock. The firm has preferred stock outstanding that pays a constant

dividend of $2.34 per year. That preferred stock is currently selling for

$89.69. However, the underwriter would charge flotation costs of $3.24 per

share. What is the form’s cost of preferred stock financing?

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

Question 5 1

/ 1 point

The Yo-Yo Corporation tries to determine the appropriate

cost for retained earnings to be used in capital budgeting analysis. The firm’s

beta is 1.34. The rate on six-month T-bills is 3.65%, and the return on the

S&P 500 index is 5.65%. What is the appropriate cost for retained earnings

in determining the firm’s cost of capital?

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box).

Question 6 1

/ 1 point

Heavy Rain Corporation just paid a dividend of $3.96 per

share, and the firm is expected to experience constant growth of 5.70% over the

foreseeable future. The common stock is currently selling for $97.39 per share.

What is Heavy Rain’s cost of retained earnings using the Gordon Model (DDM)

approach?

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

Homework 6G

Question 1 1

/ 1 point

Given the following information on Big Brothers, Inc.

capital structure, compute the company’s weighted average cost of capital

(WACC). The company’s marginal tax rate is 40%.

(Write the percentage sign in the “units” box)

Type of Capital Percent

of Capital Structure Before-Tax

Component Cost

Bonds 44% 8.53%

Preferred Stock 12% 17.71%

Common Stock Please

calculate it 13.73%

Question 2 1

/ 1 point

The Black Bird Company plans an expansion. The expansion is

to be financed by selling $114 million in new debt and $90 million in new

common stock. The before-tax required rate of return on debt is 6.25% percent

and the required rate of return on equity is 15.32% percent. If the company is

in the 34 percent tax bracket, what is the weighted average cost of capital?

(Write the percentage sign in the “units” box)

Question 3 1

/ 1 point

Garden Tools Inc. has bonds, preferred stock, and common

stocks outstanding. The number of securities outstanding, the current market

price, and the required rate of return for these securities are stated in the

table below. The firm’s tax rate is 35%.

Calculate the firm’s WACC adjusted for taxes using the

market information in the table.

form. (Write the percentage sign in the

“units” box)

The Number of Securities

Outstanding Selling price The Required Rate of Return

Bonds 1,129 $1,180 11.39%

Preferred Stocks 5,155 $63.60 16.86%

Common Stocks 1,891 $98.46 10.29%