Leslie Industries is considering the following independent projects for the coming year: Project RequiredInvestment ExpectedRate of Return Risk X $8 million 12.0% High Y   4 million 10.0% Average Z   4 million   5.5% Low Leslie’s WACC is 9 percent, but it adjusts for risk by adding 2 percent to the WACC for high-risk projects and subtracting 2 percent for low-risk projects.  Which project(s) should Leslie accept assuming it faces no capital constraints?

A firm with a 12.5 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: -$10,000 $4,900 $4,300 $5,500 Project Y: -$7,000 $2,900 $3,600 $3,700 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

Broussard Industries plans to issue a $100 par perpetual preferred stock with a fixed annual dividend of 11 percent of par.  It would sell for $90.00, but flotation costs would be 5 percent of the market price.  What is the percentage cost of preferred stock after taking flotation costs into account?

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: -$6,000 $3,300 $2,200 $3,200 Project Y: -$4,000 $1,800 $2,200 $2,100 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

Loyd & Associates’ common stock currently trades at $45 a share.  It is expected to pay an annual dividend of $1.35 a share at the end of the year (D1 = $1.35), and the constant growth rate is 8.2 percent a year.  What is the company’s cost of common equity if all of its equity comes from retained earnings?

The Crabtree Company’s cost of common equity is 12 percent, its before-tax cost of debt is 7 percent, and its marginal tax rate is 30 percent.  Given Crabtree’s market value capital structure below, calculate its WACC. Long-term debt $26,000,000 Common equity   64,000,000 Total capital $90,000,000

Directions You are asked to answer the question given. Please choose the best answer to the question.   If you are having technical problems with VHL, what page can I go to seek help?

The Bettencourt Company’s currently outstanding bonds have a 12.9 percent coupon and a 9.7 percent yield to maturity.  Bettencourt believes it could issue new bonds that would provide a similar yield to maturity.  If its marginal tax rate is 30 percent, what is Bettencourt’s after-tax cost of debt?

Fritz Industries plans to issue a $100 par perpetual preferred stock with a fixed annual dividend of 8 percent of par.  It would sell for $108.40, but flotation costs would be 5 percent of the market price.  What is the percentage cost of preferred stock after taking flotation costs into account?

Koerschen Wholesalers can invest in one of two mutually exclusive machines that will make a product it needs for the next 6 years.  Machine X costs $13 million but realizes after-tax inflows of $5.3 million per year for 3 years, after which it must be replaced.  Machine Y costs $21 million and realizes after-tax inflows of $6.1 million per year for 6 years.  Based on the firm’s cost of capital of 7 percent, the NPV of Machine Y is $8,075,892, with an equivalent annual annuity (EAA) of $1,694,288 per year.  Calculate the EAA of Machine X. Compare your result to that of Machine Y and decide which to recommend.