A firm with a 9 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$14,000 $5,200 $6,200 $6,400 $5,500 Calculate the project’s profitability index (PI).

Thurman Industries plans to issue a $100 par perpetual preferred stock with a fixed annual dividend of 8 percent of par.  It would sell for $102.80, but flotation costs would be 10 percent of the market price.  What is the percentage cost of preferred stock after taking flotation costs into account?

Corbett Manufacturing can invest in one of two mutually exclusive machines that will make a product it needs for the next 6 years.  Machine J costs $14 million but realizes after-tax inflows of $6.8 million per year for 3 years, after which it must be replaced.  Machine K costs $25 million and realizes after-tax inflows of $7.3 million per year for 6 years.  Based on the firm’s cost of capital of 12 percent, the NPV of Machine K is $5,013,273, with an equivalent annual annuity (EAA) of $1,219,357 per year.  Calculate the EAA of Machine J. Compare your result to that of Machine K and decide which to recommend.

You work for Whittenerg Inc., which is considering a new project whose data are shown below. What is the project’s Year 1 operating cash flow?   Sales revenues, each year $62,500 Depreciation $  8,000 Other operating costs $25,000 Interest expense $  8,000 Tax rate 35.0%    

If a firm’s beta is 0.6, the risk-free rate is 5%, and the expected return on the market is 13%, what will be the firm’s cost of equity using the CAPM approach?

Fritz Industries plans to issue a $100 par perpetual preferred stock with a fixed annual dividend of 12 percent of par.  It would sell for $105.40, but flotation costs would be 10 percent of the market price.  What is the percentage cost of preferred stock after taking flotation costs into account?

A firm with a 9.5 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$11,000 $3,500 $4,800 $4,200 $5,000 Calculate the project’s payback period.

If a firm’s beta is 0.8, the risk-free rate is 3.5%, and the expected return on the market is 10.5%, what will be the firm’s cost of equity using the CAPM approach?

A firm with a 10 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$10,000 $3,900 $4,200 $3,400 $4,900 Calculate the project’s profitability index (PI).

A firm with a 13.5 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$4,000 $2,000 $1,300 $2,100 Project Y: -$4,000 $1,500 $1,400 $2,100 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?