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Payback Period, NPV, WACC and Cost of Debt

1. What is the paycheck period for a 20,000 project that is expected to return 6,000 per year for the first two years and 3,000 per year for years three through five?

2. Rymer, Inc. is considering a new assembler, which costs 180,000 installed, and has a depreciable life of 5 years. The expected annual after tax cash flows for the assembler are 60,000 in each of the 5 years and nothing thereafter. Calculate the net present value (npv) of the assembler if the required rate of return is 14 percent. Round to the nearest ten dollars.

3. An old machine was purchased for 20,000, at a book value of 5,000, and sold for 9,000. The firm's marginal tax rate is 25%. What is the amount of taxes due?

4. A firm purchased an asset with a 5-year life for 90,000, and it cost 10,000 for shipping installation. Using the simplified straight-line method, what is the annual depreciation?

5. The Acu Punct Corporation is considering the purchase of new machine with an initial outlay of 4,500 and expected cash flows in years 1-4 of 2,200 per year. The risk -adjusted discounted rate for the firm is 12% and the risk-free rate is 5%. Compute the net present value of this project.

6. J&B, Inc. has 5million of debt outstanding with a coupon rate of 12%. Currently the yield to maturity on these bonds is 14 %. If the form's tax rate is 40%, what is the cost of debt to J%B.?

7. Vispu Corporation plans to issue 10-years bonds with a par value of 1,000 that will pay 55.00 every six months. Then net amount of capital to the firm from the sale of each bond is 840.68. If Vispu is in the 25% tax bracket and it's before tax cost of capital is 14%, what is the after-tax cost debt?

8. The firm's preferred stock is currently selling for 36.00 and pays a perpetual annual dividend of 2.60 per share. Underwriters of the new issue of preferred stock would charge 6.00 per share in flotation cost. The firm's tax rate is 30%. Compute the cost of the new preferred stock for xyz.

9. Shawshan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt 10%, preferred stock 11%, and common stock 18%. Assuming a 40% marginal tax rate, what is the firm's weighted average cost of capital?

Solution Summary

The solution contains the answers for nine problems inclusive of computation of pay back period, Net present value, Weighted average cost of capital, depreciation, cost of debt etc.,

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