Three separate projects each have an initial cash outlay of $10,000. The cash flow for Peter's project is $4,000 per year for three years. The cash flow for Paul's Project is $2,000 in years 1 and 3 and $8,000 in year 3. Mary's Project has a cash flow of $10,000 in year 1, followed by $1,000 each year for years 2 and 3.

a. Use the payback method to calculate how many years it will take for each project to recoup the initial investment.
b. Which project would you consider most liquid?

Problem 9-18 --> Weighted Average Cost of Capital

Alvin C. York, the founder of York Corporation, thinks that the optimal capital structure of his company is 30 percent debt, 15 percent preferred stock, and the rest common equity. If the company is in the 40 percent tax bracket, compute its weighted average cost of capital given that:

a. YTM of its debt is 10 percent

b. New preferred stock will have a market value of $31, a dividend of $2 per share, and flotation costs of $1 per share.

c. Price of common stock is currently $100 per share, and new common stock can be issued at the same price with flotation costs of $4 per share. The expected dividend in one year is $4 per share, and the growth rate is 6 percent.

Assume the addition to retained earnings for the current period is zero.

***Please use excel for answers and show all formulas****

Solution Summary

This solution illustrates how to compute the payback period of a project and how to compute a corporation's weighted-average cost of capital if the preferred stock and common stock issuances incur flotation costs.

I have an excel spreadsheet where certain areas have been left blank and need to be computed in order to complete a research paper. However, I'm not sure how to do the calculations correctly. Please help. The areas highlighted in YELLOW need to be calculated. Thank you.

Project SS costs $52,125, its expected net cash flows are $12,000 per year for 8 years, its WACC is 12%.
What is the project's NPV?
IRR?
MIRR?
PaybackPeriod?
Discounted PaybackPeriod?
(Show calculations)

2. Assume a project has normal cash flows. All else equal, which of the following statements is correct?
a. The project's IRR increases as the WACC declines.
b. The project's NPV increases as the WACC declines.
c. The project's MIRR is unaffected by changes in the WACC
d. The project's

The ABC Corporation is considering a project which has an up-front cost paid today at t = 0. The project will generate positive cash flows of $70,000 a year at the end of each of the next five years. The project's NPV is $90,000 and the company's WACC is 12 percent. What is the project's simple, regular payback?

XYZ is evaluating a project with the following annual net cash flows:
0 year=-$600
1 year=$50
2 year=$100
3 year=$150
4 year=$350
5 year=$100
1) XYZ is a small company with limited resources, its managers are concerned about how capital will be tied up in projects. What is the project's paybackperiod? Assume XYZ's ca

Consider the following potential investment, which has the same risk as the firm's other projects:
Time Cash Flow
0 -$75,000
1 $10,000
2 $16,000
3 $18,000
4 $18,000
5 $18,000
6 $20,000
a) What are the investment's paybackperiod, IRR, and NPV, assuming the firm's WACC is 10%.
b) If the firm requires a paybackperiod

The Bingo Corporation is considering a project which has an up-front cost paid today at t=0. The project will generate positive cash flows of $85,000 a year at the end of each of the next five years. The project's NPV is $100,000 and the company's WACC is 10 percent . What is the project's simple, regular payback?

Bey Bikes is considering a project that has the following cash flow andWACC data. What is the project's discounted payback?
WACC: 10.00%
Year: 0 1 2 3 4
Cash Flows: -$1,000 $525 $485 $445 $405
A. 1.72 years
B. 1.92 years
C. 2.13 years

The shop foreman at Santa Barbara Rig Service proposed a portable service unit requiring an initial outlay of $100,000 and providing the following year-end cash flows:
Year 1 2 3 4 5
Cash flow 30000 -50000 70000 60000 50000
At a 10% required return, find the paybackperiodand

Assume a project has normal cash flows. All else equal, which of the following statements is correct?
-The projects IRR increases as the WACC declines
- The projects NPV increases as the WACC declines
- The projects MIRR is unaffected by changes in WACC
-The projects regular payback increases as the WACC declines