Koerschen Wholesalers can invest in one of two mutually exclusive machines that will make a product it needs for the next 6 years.  Machine C costs $11 million but realizes after-tax inflows of $4.8 million per year for 3 years, after which it must be replaced.  Machine D costs $17 million and realizes after-tax inflows of $4.6 million per year for 6 years.  Based on the firm’s cost of capital of 11 percent, the NPV of Machine D is $2,460,474, with an equivalent annual annuity (EAA) of $581,598 per year.  Calculate the EAA of Machine C. Compare your result to that of Machine D and decide which to recommend.

In theory, the decision maker should view market risk as being of primary importance. However, within-firm, or corporate, risk is relevant to a firm’s

If a firm’s beta is 1.3, the risk-free rate is 4.5%, and the expected return on the market is 12.5%, what will be the firm’s cost of equity using the CAPM approach?

The Harden Company’s cost of common equity is 12 percent, its before-tax cost of debt is 8 percent, and its marginal tax rate is 30 percent.  Given Harden’s market value capital structure below, calculate its WACC. Long-term debt $11,000,000 Common equity   39,000,000 Total capital $50,000,000

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: -$9,000 $3,500 $3,100 $3,300 $4,200 Calculate the project’s profitability index (PI).

If a firm’s beta is 1.6, the risk-free rate is 4.5%, and the expected return on the market is 8.5%, what will be the firm’s cost of equity using the CAPM approach?

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: -$9,000 $3,400 $3,100 $3,500 $4,100 Calculate the project’s payback period.

A firm with a 13 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: -$13,000 $5,600 $5,300 $6,400 $4,200 Calculate the project’s discounted payback period.

Which of the following is a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?

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: -$11,000 $3,700 $4,700 $3,900 $4,200 Calculate the project’s payback period.