1. What is the payback if investment cost is $45,000 and the after tax benefit is $2,000?
2. An interest payment of $650 in a 20 percent tax bracket would result in a tax savings of _____.
3. Joe Morton buys a piece of equipment for $200,000. He puts down $40,000 and finances $160,000. Joe's opportunity cost is 4 percent and the lender's interest rate is 8 percent. Find the weighted average cost of capital (WACC).
4. Lisa Camry bought a $15,000 car with a $3,000 down payment. The balance is financed by a manufacturer's sale offering 0-percent annual interest. If Lisa's opportunity cost is 5 percent, what is her WACC?
5. What is the relationship between NPV and profitability index (PI)?
6. What are the advantages of the PI method of capital budgeting?
7. How does the accounting rate of return (ARR) differ from the internal rate of return (IRR)?
8. List the advantages and disadvantages of the payback method.