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: -$15,000 $6,900 $6,600 $5,600 $7,200 Calculate the project’s payback period.

The Fontenot Company’s cost of common equity is 15 percent, its before-tax cost of debt is 11 percent, and its marginal tax rate is 30 percent.  Given Fontenot’s market value capital structure below, calculate its WACC. Long-term debt $26,000,000 Common equity   54,000,000 Total capital $80,000,000

Fritz Industries plans to issue a $100 par perpetual preferred stock with a fixed annual dividend of 8 percent of par.  It would sell for $108.40, but flotation costs would be 5 percent of the market price.  What is the percentage cost of preferred stock after taking flotation costs into account?

Hendrickson Industries is considering the following independent projects for the coming year: Project RequiredInvestment ExpectedRate of Return Risk X $8 million 13.5% High Y   4 million 10.0% Average Z   3 million   7.5% Low Hendrickson’s WACC is 10.5 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 Hendrickson accept assuming it faces no capital constraints?

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: -$8,000 $3,700 $3,800 $3,900 $2,500 Calculate the project’s payback period.

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: -$6,000 $2,500 $2,900 $2,800 $2,100 Calculate the project’s payback period.

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.