1. (IRR?) Your investment advisor has offered you an investment that will provide you with one cash flow of $10,000 at the end of 20 years if you pay premiums of $200 per year at the end of each year for 20 years. Find the internal rate of return on this investment.
What is the internal rate of return on this? investment? ?% (Round to two decimal? places.)
2. ?(Weighted average cost of capital?) Crawford Enterprises is a publicly held company located in? Arnold, Kansas. The firm began as a small tool and die shop but grew over its? 35-year life to become a leading supplier of metal fabrication equipment used in the farm tractor industry. At the close of? 2015, the? firm's balance sheet appeared as? follows:
Cash,"$560,000",,,
Accounts receivable,"4,120,000",,,
Inventories,"7,400,000",,Long-term debt,"$10,780,000"
"Net property, plant, and equipment","18,725,000",,Common equity,"20,025,000"
Total assets,"$30,805,000",,Total debt and equity,"$30,805,000"
At present the? firm's common stock is selling for a price equal to its book? value, and the? firm's bonds are selling at par.? Crawford's managers estimate that the market requires a return of 16 percent on its common? stock, the? firm's bonds command a yield to maturity of 9 percent, and the firm faces a tax rate of 37 percent.
a. What is? Crawford's weighted average cost of? capital?
b. If? Crawford's stock price were to rise such that it sold at 1.5 times book? value, causing the cost of equity to fall to 14 percent, what would the? firm's cost of capital be? (assuming the cost of debt and tax rate do not? change)?
a. What is? Crawford's weighted average cost of? capital? % (Round to two decimal? places.)
b. If? Crawford's stock price were to rise such that it sold at 1.5 times book? value, causing the cost of equity to fall to 14 percent, what would the? firm's cost of capital be? (assuming the cost of debt and tax rate do not? change)? % (Round to two decimal? places.)