A firm with a 12 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$5,000 $2,200 $2,300 $2,300 $1,700 Calculate the project’s discounted payback period.

A firm with a 9.5 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$6,000 $2,800 $2,700 $2,200 $2,900 Calculate the project’s internal rate of return (IRR).

A firm with a 13.5 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$6,000 $3,300 $2,200 $3,200 Project Y: -$4,000 $1,800 $2,200 $2,100 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

Corbett Manufacturing can invest in one of two mutually exclusive machines that will make a product it needs for the next 6 years.  Machine J costs $14 million but realizes after-tax inflows of $6.8 million per year for 3 years, after which it must be replaced.  Machine K costs $25 million and realizes after-tax inflows of $7.3 million per year for 6 years.  Based on the firm’s cost of capital of 12 percent, the NPV of Machine K is $5,013,273, with an equivalent annual annuity (EAA) of $1,219,357 per year.  Calculate the EAA of Machine J. Compare your result to that of Machine K and decide which to recommend.

As a member of UA Corporation’s financial staff, you must estimate the Year 1 operating cash flow for a proposed project with the following data. What is the Year 1 operating cash flow?   Sales revenues, each year $42,500 Depreciation $10,000 Other operating costs $17,000 Interest expense $  4,000 Tax rate 35.0%    

A firm with a 13.5 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$10,000 $3,100 $5,400 $5,300 Project Y: -$5,000 $2,500 $1,900 $2,700 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

The Bettencourt Company’s currently outstanding bonds have a 12.2 percent coupon and a 6.9 percent yield to maturity.  Bettencourt believes it could issue new bonds that would provide a similar yield to maturity.  If its marginal tax rate is 30 percent, what is Bettencourt’s after-tax cost of debt?

The Crabtree Company’s cost of common equity is 12 percent, its before-tax cost of debt is 7 percent, and its marginal tax rate is 30 percent.  Given Crabtree’s market value capital structure below, calculate its WACC. Long-term debt $26,000,000 Common equity   64,000,000 Total capital $90,000,000

A firm with a 10 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$10,000 $3,900 $4,200 $3,400 $4,900 Calculate the project’s profitability index (PI).

The Herron Company’s cost of common equity is 13 percent, its before-tax cost of debt is 10 percent, and its marginal tax rate is 30 percent.  Given Herron’s market value capital structure below, calculate its WACC. Long-term debt $29,000,000 Common equity   51,000,000 Total capital $80,000,000