A firm with a 9 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: -$13,000 $5,100 $5,900 $6,000 $6,200 Calculate the project’s internal rate of return (IRR).

The Fontenot Company’s cost of common equity is 18 percent, its before-tax cost of debt is 13 percent, and its marginal tax rate is 35 percent.  Given Fontenot’s market value capital structure below, calculate its WACC. Long-term debt $  4,000,000 Common equity   16,000,000 Total capital $20,000,000

Loyd & Associates’ common stock currently trades at $70 a share.  It is expected to pay an annual dividend of $2.80 a share at the end of the year (D1 = $2.80), and the constant growth rate is 9.8 percent a year.  What is the company’s cost of common equity if all of its equity comes from retained earnings?

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: -$5,000 $2,100 $2,300 $2,500 $2,400 Calculate the project’s profitability index (PI).

A. Butcher Timber Company hired your consulting firm to help them estimate the cost of common equity. The yield on the firm’s bonds is 8.75%, and your firm’s economists believe that the cost of common can be estimated using a risk premium of 3.85% over a firm’s own cost of debt. What is an estimate of the firm’s cost of common from retained earnings?

A firm with a 12.5 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: -$11,000 $5,300 $5,200 $4,800 $5,300 Calculate the project’s internal rate of return (IRR).

Martinez Motors’ bonds have 10 years remaining to maturity.  Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 10 percent; and the yield to maturity is 10.5 percent.  What is the bond’s current market price?

If a firm’s beta is 1.3, the risk-free rate is 5%, and the expected return on the market is 9%, what will be the firm’s cost of equity using the CAPM approach?

Thurman Industries plans to issue a $100 par perpetual preferred stock with a fixed annual dividend of 11 percent of par.  It would sell for $94.60, but flotation costs would be 10 percent of the market price.  What is the percentage cost of preferred stock after taking flotation costs into account?

Kiev Corporation’s outstanding bonds have a $1,000 par value, a 13 percent semiannual coupon, 8 years to maturity, and an 8 percent yield to maturity (YTM).  What is the bond’s price?