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: -$10,000 $4,600 $3,100 $3,700 $3,100 Calculate the project’s profitability index (PI).

The Rodman Company’s currently outstanding bonds have a 7.4 percent coupon and a 6.4 percent yield to maturity.  Rodman believes it could issue new bonds that would provide a similar yield to maturity.  If its marginal tax rate is 35 percent, what is Rodman’s after-tax cost of debt?

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: -$15,000 $5,700 $7,200 $5,400 $5,900 Calculate the project’s payback period.

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

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