Asked by maddy 5 years ago

1) Find the NPV and PI of an annuity that pays \$500 per year for eight years and costs \$2,500. Assume a discount rate of 6 percent.

2) Find the IRR and MIRR of a project if it has estimated cash flows of \$5,500 annually for seven years if its year-zero investment is $25,000 and the firms minimum required rate of return on the project is 10 percent.

3) For the following projects, compute NPV, IRR, MIRR, profitability index, and payback. If these projects are mutually exclusive, which one(s) should be done? If they are independent, which one(s) should be undertaken?

i. A

B

C

D

Year 0

-1,000

-1,500

-500

-2,000

Year 1

400

500

100

600

Year 2

400

500

300

800

Year 3

400

700

250

200

Year 4

400

200

200

300

Discount Rate

10%

12%

15%

8%

4) AQ&Q has EBIT of \$2 million, total assets of \$10 million, stock holders equity of $4 million, and pretax interest expense of 10 percent.

a) What is AQ&Qs indifference level of EBIT?

b) Given its current situation, might it benefit from increasing or decreasing its use of debt? Explain.

c) Suppose we are to AQ&Qs average tax rate is 40 percent. How does this affect your answers to (A) and (B)?

5) Faulkners Fine Fries, Inc. (FFF), is thinking about reducing its debt burden. Given the following capital structure information and an expected EBIT of $50 million (plus or minus 10 percent) next year, should FFF change their capital structure?

6) The Nutrex Corporation wants to calculate its weighted average cost of capital. Its target capital structure weights are 40 percent long-term debt and 60 percent common equity. The before-tax cost of debt is estimated to be 10 percent and the company is in the 40 percent tax bracket. The current risk-free interest rate is 8 percent on Treasury bills. The expected return on the market is 13 percent and the firms stock beta is 1.8

Find the

maddy

Answered by lancer 5 years ago

**Excerpt from file: **Tutorial 1) Find the NPV and PI of an annuity that pays 500 per year for eight years and costs 2,500. Assume a discount rate of 6 percent. PV of cash inflows 500 PVIFA(6%,8) 500 3,105 PV of cash outflows 2,500 NPV 3,105 2,500 605 PI 3,105/2,500 2) Find the IRR and MIRR of a project if it

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**Excerpt from file: **Week3DQ2VerticalIntegrationBUS402StrategicManagement&BusinessPolicy Isyourcompanyverticallyintegrated?Ifso,isitfully,orpartially,integrated?Ifnot,wouldsuch amoveyieldpotentiallyhighcompetitiverewards?Explainyourrationale.Youcanalsousea pastfirmoronewithwhichyouarefamiliar.

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BUS 402 Week 3 - DQ2 - Vertical Integration.docx

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Asked: 5 years ago