Reference no: EM132873706
After-Tax Cost of Debt
LL Incorporated's currently outstanding 9% coupon bonds have a yield to maturity of 6.4%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is LL's after-tax cost of debt? Round your answer to two decimal places.
Problem 1: (Cost of Equity: CAPM)
Cost of Equity: CAPM
Booher Book Stores has a beta of 0.7. The yield on a 3-month T-bill is 3% and the yield on a 10-year T-bond Is 7%. The market risk premium Is 5.5%, and the return on an average stock in the market last year was 14%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.
Problem 2: (WACC)
WACC
David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 7%, and the company's tax rate is 250/0. Ortiz's CFO has calculated the company's WACC as 8.70/o. What is the company's cost of equity capital? Round your answer to the nearest whole number.
Problem 3: (NPV)
NPV
A project has an initial cost of 555,000, expected net cash inflows of 515,000 per year for 6 years, and a cost of capital of 10%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent.
Problem 4: (IRR)
IRR
A project has an Initial cost of 545,000, expected net cash inflows of 59,000 per year for 9 years, and a cost of capital of 10%. What is the project's IRR? Round your answer to two decimal places.
Problem 5: (MIRR)
MIRR
A project has an initial cost of 570,000, expected net cash inflows of 510,000 per year for 10 years, and a cost of capital of 9%. What is the project's MIRR? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.
Problem 6: (Profitability Index)
Profitability Index
A project has an Initial cost of 555,000, expected net cash Inflows of 515,000 per year for 11 years, and a cost of capital of 13%. What Is the project's PI? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.
Problem 7: (Payback)
Payback
A project has an initial cost of 575,000, expected net cash inflows of 514,000 per year for 9 years, and a cost of capital of 13%. What Is the project's payback period? Round your answer to two decimal places.
Problem 8: (Discounted Payback)
A project has an initial cost of 552,125, expected net cash inflows of 512,000 per year for 7 years, and a cost of capital of 12%. What is the project's discounted payback period? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places ____ years
NPVS, IRRS, and MIRRs for Independent Projects
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $18,000, and that for the pulley system is $22,000. The firm's cost of capital Is 14%. After-tax cash flows, including depreciation, are as follows:
| Year |
Truck
|
Pulley |
|
1
|
55,100
|
57,500
|
|
2
|
5,100
|
7,500
|
|
3
|
5,100
|
7,500
|
|
4
|
5,100
|
7,500
|
|
5
|
5,100
|
7,500
|
Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places. Use a minus sign to enter negative values, If any.
Problem 9: (Project Cash Flow)
Project Cash Flow
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:
Projected sales $24 million
Operating costs (not Including depreciation) $13 million
Depreciation $4 million
Interest expense $4 million
The company faces a 250/0 tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer In dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.
Net Salvage Value
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost 59 million, of which 65% has been depreciated. The used equipment can be sold today for 53.6 million, and its tax rate is 25%. What is the equipment's after-tax net salvage value? Enter your answer in dollars. For example, an answer of 51.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.