Given the following information on the project’s net operating working capital,  the cash flow of year 2 due to investments in net operating working capital is________? Time        NOWC 0            21.37 1            30.05 2            31.61 3            20.00

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: -$9,000 $3,500 $3,100 $3,300 $4,200 Calculate the project’s profitability index (PI).

Liberty Services is now at the end of the final year of a project. The equipment originally cost $22,500, of which 75% has been depreciated. The firm can sell the used equipment today for $6,000, and its tax rate is 40%. What is the equipment’s after-tax salvage value for use in a capital budgeting analysis? Note that if the equipment’s final market value is less than its book value, the firm will receive a tax credit as a result of the sale.

If a firm’s beta is 1.6, the risk-free rate is 4.5%, and the expected return on the market is 8.5%, what will be the firm’s cost of equity using the CAPM approach?

Leslie Industries is considering the following independent projects for the coming year: Project RequiredInvestment ExpectedRate of Return Risk X $8 million 12.0% High Y   4 million 10.0% Average Z   4 million   5.5% Low Leslie’s WACC is 9 percent, but it adjusts for risk by adding 2 percent to the WACC for high-risk projects and subtracting 2 percent for low-risk projects.  Which project(s) should Leslie accept assuming it faces no capital constraints?

The Fontenot Company’s cost of common equity is 16 percent, its before-tax cost of debt is 11 percent, and its marginal tax rate is 25 percent.  Given Fontenot’s market value capital structure below, calculate its WACC. Long-term debt $30,000,000 Common equity   50,000,000 Total capital $80,000,000

Thurman Industries plans to issue a $100 par perpetual preferred stock with a fixed annual dividend of 8 percent of par.  It would sell for $102.80, 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?

A company is considering an expansion project. The company’s CFO plans to calculate the project’s NPV by discounting the relevant cash flows (which include the initial up-front costs, the operating cash flows, and the terminal cash flows) at the company’s cost of capital (WACC). Which of the following factors should the CFO include when estimating the relevant cash flows?

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