# IRR,NPV,net income, after tax cost of debt,EPS,net income

Can you help me get started on these problems?

3) A $120,000.00 investment will pay $34,883.50 year one, $43,604.37 year two, $34,883.50 year three, $17,441.75 year four, and $8,720.87 year five, what is the IRR ?

[a] 6.25%

[b] 6.50%

[c] 6.75%

[d] 7.00%

[e] 7.25%

Hint: The necessary formula is

IRR = the interest rate that discounts the cash flows equal the initial investment (NPV = 0)

There is an example of calculating IRR the text student website chapter 9

http://wps.aw.com/aw_gitman_pmfbrief_4/0,10397,1970895-00.html

8) Ponderosa Co. bonds sell for $846.04. The coupon rate is 8 percent and the bonds mature in 25 years. Interest is paid semi-annually and the firm's tax rate is 34 percent. What is the aftertax cost of debt?

[a] 3.18 percent

[b] 4.99 percent

[c] 6.36 percent

[d] 9.34 percent

[e ] 9.64 percent

14) Jorge, Inc., has 200,000 shares of stock outstanding. The firm has an EBIT of $1 million and interest paid of $100,000. The tax rate is 34 percent. What is Jorge's earnings per share?

[a] $0.20

[b] $1.65

[c] $2.97

[d] $3.30

[e] $5.00

19) What is the present value of $1,969.88 to be received in 10 years if the discount rate is 4% per year?

[a] $1,642.66

[b] $1,560.86

[c] $1,458.60

[d] $1,330.78

[e] $1,064.62

Hint: The necessary formula is PV = FV / (1 + r)t

21) How much must be deposited at 8% each of the next 16 years to have $5,685.80 ?

[a] $187.50

[b] $221.00

[c] $248.00

[d] $269.50

[e] $286.50

Hint: The necessary formula is FV = C X [(1 + r)t - 1]/r This is an annuity

25) What is the annual rate of return on $7,000.00 invested for 4 years with an ending value of $18,790.48?

[a] 1.75%

[b] 3.50%

[c] 7.00%

[d] 14.00%

[e] 28.00%

30) A firm had year end 2004 and 2005 retained earnings balance of $670,000 and $560,000, respectively. The firm reported net profits after taxes of $100,000 in 2005. The firm paid dividends in 2005 of _________.

(a) $10,000

(b) $100,000

(c) $110,000

(d) $210,000

33) A firm had the following accounts and financial data for 2005:

Sales revenue $3,060 Cost of goods sold $1,800

Accounts receivable 500 Preferred stock dividends 18

Interest expense 126 Tax rate 40%

Total operating expenses 600 Number of common shares 1,000

Accounts payable 240   outstanding

The firm's earnings per share, rounded to the nearest cent, for 2005 was ______.

(a) $0.53

(b) $0.51

(c) $0.32

(d) $0.30

Be careful on the arithmetic. Rounding the wrong way gives you the wrong answer. Round numbers ending in 5 or more up.

41) What is the dividend on an 8 percent preferred stock that currently sells for $45 and has a face value of $50 per share?

(a) $3.33

(b) $3.60

(c) $4.00

(d) $5.00

43. In October, a firm had an ending cash balance of $35,000. In November, the firm had a net cash flow of $40,000. The minimum cash balance required by the firm is $25,000. At the end of November, the firm had

(a) an excess cash balance of $50,000.

(b) an excess cash balance of $75,000.

(c) required total financing of $15,000.

(d) required total financing of $5,000.

44. A firm has actual sales in November of $1,000 and projected sales in December and January of $3,000 and $4,000, respectively. The firm makes 10 percent of its sales for cash, collects 40 percent of its sales one month following the sale, and collects the balance two months following the sale. The firm's total expected cash receipts in January

(a) are $700.

(b) are $2,100.

(c) are $1,900.

(d) cannot be determined with the information provided.

49. A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of $1,000,000; the firm's cost of capital is 15 percent.

Table 9.2

Project Initial Investment IRR NPV

1 $200,000 19% $100,000

2 400,000 17 20,000

3 250,000 16 60,000

4 200,000 12 -5,000

5 150,000 20 50,000

6 400,000 15 150,000

Using the internal rate of return approach to ranking projects, which projects should the firm accept? (See Table 9.2)

(a) 1, 2, 3, 4, and 5

(b) 1, 2, 3, and 5

(c) 2, 3, 4, and 6

(d) 1, 3, 4, and 6

50. Using the net present value approach to ranking projects, which projects should the firm accept? (See Table 9.2)

(a) 1, 2, 3, 4, and 5

(b) 1, 2, 3, 5, and 6

(c) 2, 3, 4, and 5

(d) 1, 3, 5, and 6

#### Solution Summary

The answer contains the computation of IRR,after tax cost of debt,earnings per share,present value,annuity value,annual rate of return,net income,dividend on preference shares,cash balance,cash receipts, net present value, selection of projects at the time of capital rationing.