Question 1. Suppose that JB Cos. has a capital structure of 75 percent equity, 25 percent debt, and that its before-tax cost of debt is 12 percent while its cost of equity is 16 percent. Assume the appropriate weighted-average tax rate is 25 percent.
What will be JB's WACC? (Round your answer to 2 decimal places.)
Question 2.
BetterPie Industries has 7 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 20,000 bonds. Assume the common shares are selling for $45 per share, the preferred shares are selling for $22.50 per share, and the bonds are selling for 98 percent of par.
What would be the weights used in the calculation of BetterPie's WACC' (Do not round intermediate calculations and round your answers to 2 decimal places.)
Question 3.
WhackAmOle has 3 million shares of common stock outstanding, 2.0 million shares of preferred stock outstanding, and 75,000 bonds. Assume the common shares are selling for $63 per share, the preferred shares are selling for $57.00 per share, and the bonds are selling for 103 percent of par.
What would be the weights used in the calculation of WhackAmOle's WACC? (Do not round intermediate calculations and round your answers to 2 decimal places.)
Equity. weight
Preferred stock weight
Debt weight
Question 4.
Suppose that B2B, Inc., has a capital structure of 37 percent equity, 18 percent preferred stock, and 45 percent debt. Assume the before-tax component costs of equity: preferred stock: and debt are 15.0 percent, 12.0 percent, and 10.0 percent, respectively.
What is B2B's WACC if the firm faces an average tax rate of 30 percent? (Round your answer to 2 decimal places.)
Question 5.
Your firm needs a computerized machine tool lathe which costs $54,000 and requires $12,400 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACR.S. 3-year dass life category. Assume a tax rate of 35 percent and a discount rate of 11 percent
If the lathe can be sold for $5,400 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.)
Question 6.
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,00.0. The truck falls into the MARS 3-year class. and it will be sold after three years for $20,600 Use of the truck will require an increase in NWC (spare parts inventory) of $2,600. The truck will have no effect on revenues, but it is expected to save the firm $20,200 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 34 percent.
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
Question 7.
Compute the payback statistic for Project A if the appropriate cost of capital is 8 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.)
| Project A |
|
|
|
|
|
|
| Time: |
0 |
1 |
2 |
3 |
4 |
5 |
| Cash flow Payback |
-$2,800 |
$1,070 |
$1,020 |
$880 |
$660 |
$460 |
Should the project be accepted or rejected?
Question 8. Compute the MIRR statistic for Project J if the appropriate cost of capital is 8 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Project J
|
|
|
|
|
|
|
| Time: |
0 |
1 |
2 |
3 |
4 |
5 |
| Cash flow |
-$2,100 |
$680 |
$2,030 |
$630 |
$630 |
$210 |
Should the project be accepted or rejected?
Question 9. Compute the NPV statistic for Project U if the appropriate cost of capital is 9 percent. (Negative amount should he indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)
Project U
|
|
|
|
|
|
|
| Time: |
0 |
1 |
2 |
3 |
4 |
5 |
| Cash flow |
-$2,150 |
$610 |
$2,130 |
$650 |
$560 |
$230 |
Should the project he accepted or rejected?
Question 10. Compute the IRR static for Project E. The appropriate cost of capital is 8 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Project E
|
|
|
|
|
|
|
| Time: |
0 |
1 |
2 |
3 |
4 |
5 |
| Cash flow |
-$2,700 |
$830 |
$840 |
$760 |
$540 |
$340 |
Should the project be accepted or rejected?