1-) WhackAmOle has 4 million shares of common stock
outstanding, 3.0 million shares of preferred stock outstanding, and 95,000
bonds. Assume the common shares are selling for $60 per share, the preferred
shares are selling for $49.00 per share, and the bonds are selling for 103
percent of par.
What would be the weights used in the calculation of
WhackAmOle’s WACC? (Do not round intermediate calculations and round your
answers to 2 decimal places.)
Equity weight %
Preferred stock
weight %
Debt weight
%
2-) Suppose that JB Cos. has a capital structure of 75
percent equity, 25 percent debt, and that its before-tax cost of debt is 10
percent while its cost of equity is 14 percent. Assume the appropriate
weighted-average tax rate is 25 percent.
What will be JB’s WACC? (Round your answer to 2 decimal
places.)
WACC %
3-) Suppose that B2B, Inc., has a capital structure of 37
percent equity, 17 percent preferred stock, and 46 percent debt. Assume the
before-tax component costs of equity, preferred stock, and debt are 15.0
percent, 12.0 percent, and 10.0 percent, respectively.
What is B2B’s WACC if the firm faces an average tax rate of
30 percent? (Round your answer to 2 decimal places.)
WACC %
4-) BetterPie Industries has 7 million shares of common
stock outstanding, 4 million shares of preferred stock outstanding, and 20,000
bonds. Assume the common shares are selling for $44 per share, the preferred
shares are selling for $21.50 per share, and the bonds are selling for 98
percent of par.
What would be the weights used in the calculation of
BetterPie’s WACC? (Do not round intermediate calculations and round your
answers to 2 decimal places.)
Equity weight %
Preferred stock
weight %
Debt weight
%
________________________________________
5-) You have been asked by the president of your company to
evaluate the proposed acquisition of a new special-purpose truck for $60,000.
The truck falls into the MACRS 3-year class, and it will be sold after three
years for $20,300. Use of the truck will require an increase in NWC (spare
parts inventory) of $2,300. The truck will have no effect on revenues, but it
is expected to save the firm $20,100 per year in before-tax operating costs,
mainly labor. The firm’s marginal tax rate is 35 percent.
What will the cash flows for this project be? (Negative
amounts should be indicated by a minus sign. Round your answers to 2 decimal
places.)
Year 0 1 2 3
FCF $
$
$
$
________________________________________
6-) KADS, Inc., has spent $340,000 on research to develop a
new computer game. The firm is planning to spend $140,000 on a machine to
produce the new game. Shipping and installation costs of the machine will be
capitalized and depreciated; they total $44,000. The machine has an expected
life of three years, a $69,000 estimated resale value, and falls under the
MACRS 7-year class life. Revenue from the new game is expected to be $540,000
per year, with costs of $190,000 per year. The firm has a tax rate of 40
percent, an opportunity cost of capital of 11 percent, and it expects net
working capital to increase by $70,000 at the beginning of the project.
What will the cash flows for this project be? (Negative
amounts should be indicated by a minus sign. Round your answers to 2 decimal
places.)
Year 0 1 2 3
FCF $
$
$
$
________________________________________
7-) Compute the IRR for Project F. The appropriate cost of
capital is 11 percent. (Do not round intermediate calculations and round your
final answer to 2 decimal places.)
Project F
Time: 0 1 2 3 4
Cash flow –$10,100 $3,850 $4,680 $2,020 $2,650
________________________________________
IRR
%
Should the project be accepted or rejected?
Accepted
Rejected
😎 Compute the payback statistic for Project B if the
appropriate cost of capital is 11 percent and the maximum allowable payback
period is three years. (Round your answer to 2 decimal places. If the project
never pays back, then enter a “0” (zero).)
Project B
Time: 0 1 2 3 4 5
Cash flow –$12,700 $3,520 $4,520 $1,860 $0 $1,340
________________________________________
Payback
years
Should the project be accepted or rejected?
Accepted
Rejected
9-) Compute the IRR static for Project E. The appropriate
cost of capital is 8 percent. (Do not round intermediate calculations and round
your final answer to 2 decimal places.)
Project E
Time: 0 1 2 3 4 5
Cash flow –$1,300 $470 $570 $580 $360 $160
________________________________________
IRR
%
Should the project be accepted or rejected?
Accepted
Rejected
10-) Compute the MIRR statistic for Project J if the
appropriate cost of capital is 8 percent. (Do not round intermediate
calculations and round your final answer to 2 decimal places.)
Project J
Time: 0 1 2 3 4 5
Cash flow –$2,100 $680 $2,030 –$630 $630 –$210
________________________________________
MIRR
%
Should the project be accepted or rejected?
Accepted
Rejected
