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?

Given the following information on the project’s net operating working capital, the cash flow of year 3 due to investments in net operating working capital is________? Time    NOWC 0         21.37 1         30.05 2         31.61 3         20.00

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 $2,800 $2,700 $2,200 $2,900 Calculate the project’s internal rate of return (IRR).