Question 1:
Suppose that B2B, Inc. has a capital structure of 35 percent equity, 16 percent preferred stock, and 4 percent debt Assume the before-tax component costs of equity, preferred stock, and debt are 14.0 percent. 10.0 percent. and 9.0 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.)
WACC ___
Question 2:
BetterPie Industries has 3 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 10,000 bonds. Assume the common shares are selling for $47 per share, the preferred shares are selling for $24.50 per share, and the bonds are selling for 99 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.)
Equity weight ___
Preferred stock weight _____
Debt weight _____
Question 3:
WhackAmOle has 4 million shares of common stock outstanding, 3.0 million shares of preferred stock outstanding, and 95,000 bonds. Assume the common shares are selling for $61 per share, the preferred shares are selling for $50.00 per share, and the bonds are selling for 104 percent of par.
What would be the weights used in the calculation of WhackArnOle'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 MNINK Industries' capital structure features 65 percent equity, 5 percent preferred stock, and 29 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 11.60 percent, 9.50 percent, and 9.00 percent, respectively.
What is MNINK's WACC if the firm faces an average tax rate of 34 percent? (Round your answer to 2 decimal places.)
WACC ____
Question 5:
KADS, Inc., has spent $470,000 on research to develop a new computer game. The firm is planning to spend $270,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $57,000. The machine has an evected life of three years, a $82,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $670,000 per year, with costs of $320,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 11 percent, and it expects net working capital to increase by $135,000 at the beginning of the project.
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 6:
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $70,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $20,800 Use of the truck will require an increase in NWC (spare parts inventory) of $2,800. The truck will have no effect on revenues, but it is expected to save the firm $23,600 per year in before-tax operating costs, mainly labor. The fimirs 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 NPV for Project K if the appropriate cost of capital is 7 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)
Project K
| Time: |
0 |
1 |
2 |
3 |
4 |
5 |
| Cash flow |
-$11,300 |
$5,650 |
$6,650 |
$6,650 |
$5,650 |
-$11,300 |
NPV ____
Should the project be accepted or rejected?
Question 8:
Compute the IRR for Project F. The appropriate cost of capital is 13 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Project F
| Time: |
0 |
1 |
2 |
3 |
4 |
| Cash flow |
-$12,000 |
$4,350 |
$5,100 |
$2,520 |
$3,150 |
IRR ____
Should the project be accepted or rejected?
Question 9:
Compute the NPV statistic for Project Y if the appropriate cost of capital is 12 percent (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal place.,)
Project Y
| Time: |
0 |
1 |
2 |
3 |
4 |
| Cash flow |
48,900 |
$3,530 |
$4,360 |
$1,700 |
$480 |
NPV ____
Should the project be 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
| 0 |
1 |
2 |
3 |
4 |
5 |
| - $2,700 |
$830 |
$840 |
$760 |
$540 |
$340 |
IRR ____
Should the project be accepted or rejected?