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: -$6,000 $2,900 $2,200 $2,900 $2,900 Calculate the project’s discounted payback period.

Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project’s 3-year life. What is the project’s Year 1 operating cash flow?   Equipment cost (depreciable basis) $65,000     Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 35.0%    

A. Butcher Timber Company hired your consulting firm to help them estimate the cost of common equity. The yield on the firm’s bonds is 8.75%, and your firm’s economists believe that the cost of common can be estimated using a risk premium of 3.85% over a firm’s own cost of debt. What is an estimate of the firm’s cost of common from retained earnings?

Bill plans to retire in 17 years.  He currently has saved up $200,000, and he believes he will need $1,000,000 at retirement.  What annual interest rate must Bill earn to reach his goal, assuming he does not save any additional funds between now and retirement?

Kiev Corporation’s outstanding bonds have a $1,000 par value, a 13 percent semiannual coupon, 8 years to maturity, and an 8 percent yield to maturity (YTM).  What is the bond’s price?

A firm’s bonds have a maturity of 19 years with a $1,000 face value, a 13 percent semiannual coupon, are callable in 5 years at $1,095, and currently sell at a price of $1,185.  What is their yield to call (YTC)?

Schallheim Corporation’s outstanding bonds have a $1,000 par value, a 14 percent semiannual coupon, 12 years to maturity, and an 11 percent yield to maturity (YTM).  What is the bond’s price?

An investment will pay $900 at the end of each of the next 4 years, $1,000 at the end of Year 5, and $1,100 at the end of Year 6.  What is its present value if other investments of equal risk earn 5 percent annually?

Bergeron Systems is considering the following independent projects for the coming year: Project RequiredInvestment ExpectedRate of Return Risk X $2 million 12.5% High Y   6 million   8.0% Average Z   8 million   8.0% Low Bergeron’s WACC is 9.5 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 Bergeron accept assuming it faces no capital constraints?

Mike plans to retire in 19 years.  He currently has saved up $350,000, and he believes he will need $1,000,000 at retirement.  What annual interest rate must Mike earn to reach his goal, assuming he does not save any additional funds between now and retirement?