Question #1
A new machine will cost $100,000 and generate after-tax cash inflows of $35,000 for 4 years.
a. Find the (NPV) Net Present Value if the firm uses a 12% opportunity cost of capital.
b. What is the (IRR) Internal Rate of Return?
c. What is the Payback in years?
d. What is the Profitability Index?
Question #2
Calculate the (NPV) Net Present Value for the following capital budgeting proposal:
$100,000 initial cost, to be depreciated straight-line over 5 years to an expected salvage value of $5,000, 35% tax rate, $45,000 additional annual revenues, $15,000 additional annual expense, $8,000 additional investment in working capital, and 11% cost of capital.
Question #3
Multiple Choice - Show calculations
(a). The weighted-average cost of capital, after tax, for a firm with a 65/35 debt/equity split, 8% cost of debt, 15% cost of equity, and a 35% tax rate would be:
A. 7.02%.
B. 8.63%.
C. 10.80%.
D. 13.80%.