# Busn602 Week 5

Busn602 Week 5

## 1. Problem 13-5 Payback (LG13-2)

Compute the payback statistic for Project B if the appropriate cost of capital is 11 percent and the maximum allowable payback period is three years. (If the project never pays back, then enter a “0” (zero).)

 Project B Time: 0 1 2 3 4 5 Cash flow: –\$11,400 \$3,390 \$4,260 \$1,600 \$0 \$1,080

Should the project be accepted or rejected?

·

accepted

·

rejected

## 2. Problem 13-12 MIRR (LG13-4)

Compute the MIRR statistic for Project J if the appropriate cost of capital is 10 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

 Project J Time: 0 1 2 3 4 5 Cash flow: –\$1,300 \$440 \$1,630 –\$550 \$390 –\$130

Should the project be accepted or rejected?

·

accepted

·

rejected

## Problem 12-3 EAC Approach (LG12-7)

3. You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost \$21,500 to purchase and which will have OCF of −\$2,700 annually throughout the vehicle’s expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost \$30,000 to purchase and which will have OCF of −\$1,400 annually throughout that vehicle’s expected 4-year life. Both cars will be worthless at the end of their life. You intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future.

If the business has a cost of capital of 12 percent, calculate the EAC. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

Scion’s EAC

Toyota’s EAC

## 4. Problem 13-8 Discounted Payback (LG13-2)

Compute the discounted payback statistic for Project D if the appropriate cost of capital is 11 percent and the maximum allowable discounted payback is four years. (Do not round intermediate calculations and round your final answer to 2 decimal places. If the project does not pay back, then enter a “0” (zero).)

 Project D Time: 0 1 2 3 4 5 Cash flow: –\$12,700 \$3,520 \$4,520 \$1,860 \$0 \$1,340

Should the project be accepted or rejected?

·

accepted

·

rejected

## 5. Problem 11-5 Tax Rate (LG11-3)

Suppose that LilyMac Photography expects EBIT to be approximately \$98,000 per year for the foreseeable future, and that it has 400 10-year, 4 percent annual coupon bonds outstanding. (Use Table 11.1.)

What would the appropriate tax rate be for use in the calculation of the debt component of LilyMac’s WACC?

Tax rate%

## 6. Problem 11-8 Cost of Preferred Stock (LG11-3)

Marme, Inc. has preferred stock selling for 99 percent of par that pays an annual coupon of 11 percent.

What would be Marme’s component cost of preferred stock? (Round your answer to 2 decimal places.)

Cost of preferred stock%

## 7. Problem 11-12 Weight of Debt (LG11-4)

OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 7,000 bonds. Suppose the common shares are selling for \$29 per share, the preferred shares are selling for \$28 per share, and the bonds are selling for 108 percent of par.

What weight should you use for debt in the computation of OMG’s WACC? (Round your answer to 2 decimal places.)

 Weight used %

8.

9.