CLICK HERE TO DOWNLOAD THIS ANSWER INSTANTLY $9.50 ONLY
Question 1
Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 9.50%
Year 0 1 2 3
Cash flows -$800 $350 $350 $350
15.03%
13.73%
10.88%
12.95%
10.62%
Question 2
Assume that Kish Inc. hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: D0 = $0.90; P0 = $27.50; and g = 7.00% (constant). Based on the DCF approach, what is the cost of common from retained earnings?
9.29%
9.68%
10.08%
10.50%
10.92%
Question 3
Tesar Chemicals is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost.
WACC 7.50%
0 1 2 3 4
CFS -$1,100 $550 $600 $100 $100
CFL -$2,700 $650 $725 $800 $1,400
$138.10
$125.67
$121.53
$147.77
$164.34
Question 4
Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC: 10.00%
Year 0 1 2 3
Cash flows -$700 $500 $500 $500
1.26years
1.47years
1.59years
1.86years
1.39years
Question 5
Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.
Old WACC: 11.00%
Year 0 1 2 3
Cash flows -$800 $350 $350 $350
8.86%
9.84%
10.94%
12.15%
13.50%
Question 6
You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common stock. What is Quigley's WACC?
8.15%
8.48%
8.82%
9.17%
9.54%
Question 7
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings?
7.07%
7.36%
7.67%
7.98%
8.29%
Question 8
You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 13.25%, and the tax rate is 40%. The firm will not be issuing any new stock. What is Quigley's WACC?
11.20%
9.99%
9.16%
9.25%
9.44%
Question 9
Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC: 10.00%
Year 0 1 2 3
Cash flows -$950 $500 $500 $500
2.22years
2.04years
2.75years
1.69years
2.35years
Question 10
You were recently hired by Scheuer Media Inc. to estimate its cost of capital. You obtained the following data: D1 = $1.75; P0 = $42.50; g = 7.00% (constant); and F = 5.00%. What is the cost of equity raised by selling new common stock?
10.43%
8.50%
12.24%
11.33%
9.97%
Question 11
Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D1 = $1.25; P0 = $15.00; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?
13.45%
13.87%
15.53%
16.50%
13.03%
Question 12
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $67.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings?
6.02%
7.09%
5.95%
6.24%
5.88%.
Question 13
Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company's tax rate is 40%. What is the component cost of debt for use in the WACC calculation?
4.28%
4.46%
4.65%
4.83%
5.03%
Question 14
Ehrmann Data Systems is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 10.75%
Year 0 1 2 3
Cash flows -$1,000 $450 $450 $450
15.64%
14.48%
15.35%
15.49%
17.52%
Question 15
Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC 10.00%
Year 0 1 2 3 4
Cash flows -$1,325 $300 $320 $340 $360
3.12%
2.73%
3.50%
2.70%
2.66%
Question 16
Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The company's marginal tax rate is 40.00%, but Congress is considering a change in the corporate tax rate to 30.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted?
0.57%
0.63%
0.70%
0.77%
0.85%
Question 17
You were recently hired by Scheuer Media Inc. to estimate its cost of common equity. You obtained the following data: D1 = $1.75; P0 = $42.50; g = 7.00% (constant); and F = 5.00%. What is the cost of equity raised by selling new common stock?
10.77%
11.33%
11.90%
12.50%
13.12%
Question 18
Rivoli Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data: D0 = $0.80; P0 = $77.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?
8.66%
7.20%
10.12%
9.11%
10.30%
Question 19
Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $1,200, and the company's tax rate is 40%. What is the component cost of debt for use in the WACC calculation?
2.54%
2.70%
3.09%
3.21%
3.63%
Question 20
Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 10.00%
Year 0 1 2 3 4
Cash flows -$850 $300 $320 $340 $360
14.08%
15.65%
17.21%
18.94%
20.83%
Question 1
Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 9.50%
Year 0 1 2 3
Cash flows -$800 $350 $350 $350
15.03%
13.73%
10.88%
12.95%
10.62%
Question 2
Assume that Kish Inc. hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: D0 = $0.90; P0 = $27.50; and g = 7.00% (constant). Based on the DCF approach, what is the cost of common from retained earnings?
9.29%
9.68%
10.08%
10.50%
10.92%
Question 3
Tesar Chemicals is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost.
WACC 7.50%
0 1 2 3 4
CFS -$1,100 $550 $600 $100 $100
CFL -$2,700 $650 $725 $800 $1,400
$138.10
$125.67
$121.53
$147.77
$164.34
Question 4
Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC: 10.00%
Year 0 1 2 3
Cash flows -$700 $500 $500 $500
1.26years
1.47years
1.59years
1.86years
1.39years
Question 5
Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.
Old WACC: 11.00%
Year 0 1 2 3
Cash flows -$800 $350 $350 $350
8.86%
9.84%
10.94%
12.15%
13.50%
Question 6
You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common stock. What is Quigley's WACC?
8.15%
8.48%
8.82%
9.17%
9.54%
Question 7
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings?
7.07%
7.36%
7.67%
7.98%
8.29%
Question 8
You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 13.25%, and the tax rate is 40%. The firm will not be issuing any new stock. What is Quigley's WACC?
11.20%
9.99%
9.16%
9.25%
9.44%
Question 9
Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC: 10.00%
Year 0 1 2 3
Cash flows -$950 $500 $500 $500
2.22years
2.04years
2.75years
1.69years
2.35years
Question 10
You were recently hired by Scheuer Media Inc. to estimate its cost of capital. You obtained the following data: D1 = $1.75; P0 = $42.50; g = 7.00% (constant); and F = 5.00%. What is the cost of equity raised by selling new common stock?
10.43%
8.50%
12.24%
11.33%
9.97%
Question 11
Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D1 = $1.25; P0 = $15.00; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?
13.45%
13.87%
15.53%
16.50%
13.03%
Question 12
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $67.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings?
6.02%
7.09%
5.95%
6.24%
5.88%.
Question 13
Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company's tax rate is 40%. What is the component cost of debt for use in the WACC calculation?
4.28%
4.46%
4.65%
4.83%
5.03%
Question 14
Ehrmann Data Systems is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 10.75%
Year 0 1 2 3
Cash flows -$1,000 $450 $450 $450
15.64%
14.48%
15.35%
15.49%
17.52%
Question 15
Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC 10.00%
Year 0 1 2 3 4
Cash flows -$1,325 $300 $320 $340 $360
3.12%
2.73%
3.50%
2.70%
2.66%
Question 16
Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The company's marginal tax rate is 40.00%, but Congress is considering a change in the corporate tax rate to 30.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted?
0.57%
0.63%
0.70%
0.77%
0.85%
Question 17
You were recently hired by Scheuer Media Inc. to estimate its cost of common equity. You obtained the following data: D1 = $1.75; P0 = $42.50; g = 7.00% (constant); and F = 5.00%. What is the cost of equity raised by selling new common stock?
10.77%
11.33%
11.90%
12.50%
13.12%
Question 18
Rivoli Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data: D0 = $0.80; P0 = $77.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?
8.66%
7.20%
10.12%
9.11%
10.30%
Question 19
Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $1,200, and the company's tax rate is 40%. What is the component cost of debt for use in the WACC calculation?
2.54%
2.70%
3.09%
3.21%
3.63%
Question 20
Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 10.00%
Year 0 1 2 3 4
Cash flows -$850 $300 $320 $340 $360
14.08%
15.65%
17.21%
18.94%
20.83%
