Reference no: EM132495667

Question 1: Bill Preneur buys a piece of equipment for $215,000. He puts down $65,000 and finances the balance. Bill's opportunity cost is 4.9 percent and the lender's interest rate is 8.5 percent. Find the weighted average cost of capital (WACC). (Do not round intermediate calculations, round final answer to two decimals, i.e. 123.45)

Question 2.1: Kenneth Padilla is considering investing in a franchise that will require an initial outlay of $81,000. He conducted market research and found that after-tax cash flows on the investment should be about $16,000 per year for the next 11 years. The franchiser stated that Kenneth would generate a 19.4 percent return. Her cost of capital is 8.2 percent. Find the Net Present Value (NPV) for the project: (Do not round intermediate calculations, round final answer to two decimals, negative should be preceded by - i.e. -123.45)

Question 2.2: Based on the NPV results you obtained in the previous question, is the franchise a good investment? Why or why not? Explain fully.

Question 3.1: Mary Bighair is considering investing in a beauty salon that will cost her $18,000. The after-tax cash flows on the investment should be about $5,000 per year for the next 6 years. Her opportunity cost of capital is 10 percent. Find the Profitability Index (PI) of buying the beauty salon: (Do not round intermediate calculations; round final answer to four decimals, i.e. 123.4567)

Question 3.2: Based on the Profitability Index (PI) results you obtained in the previous question, is the beauty salon a good investment? Why or why not? Explain fully.