An investment project provides cash inflows of $1,400 per year for eight years. (Enter 0 if the project never pays back. Round your answers to 2 decimal places (e.g., 32.16).) Requirement 1: What is the project payback period if the initial cost is $4,350?  Payback period   years   Requirement 2: What is the project payback period if the initial cost is $5,400?  Payback period   years   Requirement 3: What is the project payback period if the initial cost is $12,200?  Payback period   years     2.Offshore Drilling Products, Inc. 

An investment project provides cash inflows of $1,400 per year for eight years. (Enter 0 if the project never pays back. Round your answers to 2 decimal places (e.g., 32.16).)  

  

 

Requirement 1:   

What is the project payback period if the initial cost is $4,350?  

  

 

  Payback period   years    

  

 

Requirement 2:   

What is the project payback period if the initial cost is $5,400?  

  

 

  Payback period   years    

  

 

Requirement 3:   

What is the project payback period if the initial cost is $12,200?

 

 Payback period   years    

 

 

 

 

 

2.Offshore Drilling Products, Inc., imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available.  

  

Year Cash Flow A Cash Flow B   

0 –$ 63,000     –$ 108,000       

1 26,000     28,000       

2 33,800     33,000       

3 28,000     26,000       

4 14,000     232,000       

 

  

 

Requirement 1:   

What is the payback period for each project? (Round your answers to 2 decimal places (e.g., 32.16).)  

  

  Payback period     

  Project A years     

  Project B years     

 

  

Requirement 2:   

Should it accept either of them?   

    

 

 

 

 

 

 

For the given cash flows, suppose the firm uses the NPV decision rule.  

  

 

Year Cash Flow   

0 –$ 148,000         

1 68,000         

2 71,000         

3 55,000         

 

  

 

Requirement 1:   

At a required return of 9 percent, what is the NPV of the project? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)  

  

  NPV  $    

  

 

Requirement 2:   

At a required return of 20 percent, what is the NPV of the project? (Do not include the dollar sign ($). Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)  

  

  NPV  $    

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consider the following cash flows:  

  

 

Year Cash Flow   

0 –$ 33,000   

1 14,900   

2 16,800   

3 12,300   

 

  

 

Requirement 1:   

What is the NPV at a discount rate of zero percent? (Do not include the dollar sign ($).)  

  

 

  Net present value $    

  

 

Requirement 2:   

What is the NPV at a discount rate of 12 percent? (Do not include the dollar sign ($).Round your answer to 2 decimal places (e.g., 32.16).)  

  

 

  Net present value $    

  

 

Requirement 3:   

What is the NPV at a discount rate of 23 percent? (Do not include the dollar sign ($). Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)  

  

 

  Net present value $    

  

 

Requirement 4:   

What is the NPV at a discount rate of 32 percent? (Do not include the dollar sign ($). Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)  

  

 

  Net present value $     

 

 

  

The Lo Tech Co. just issued a dividend of $2.30 per share on its common stock. The company is expected to maintain a constant 7 percent growth rate in its dividends indefinitely.  

  

Required:   

If the stock sells for $43.10 a share, what is the company’s cost of equity? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)  

  

  Cost of equity %     

Bohannon Corporation’s common stock has a beta of 1.23. Assume the risk-free rate is 4.8 percent and the expected return on the market is 12.3 percent.  

  

Required:   

What is the company’s cost of equity capital? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)  

  

  Cost of equity %    

  

Mullineaux Corporation has a target capital structure of 64 percent common stock, 9 percent preferred stock, and 27 percent debt. Its cost of equity is 13.9 percent, the cost of preferred stock is 6.9 percent, and the cost of debt is 8.6 percent. The relevant tax rate is 40 percent.  

  

Required:   

(a) What is Mullineaux’s WACC? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)  

  

  WACC %    

  

(b) What is the aftertax cost of debt? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)  

  

  Aftertax cost of debt %    

 

 

 

 

 

 

 

 

 

 

 

 

Bono, Inc., is considering a project that will result in initial aftertax cash savings of $6.4 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt-equity ratio of 0.63, a cost of equity of 13.3 percent, and an aftertax cost of debt of 5.8 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects.  

  

Requirement 1:   

Calculate the WACC. (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)  

  

  WACC %    

  

Requirement 2:   

What is the maximum cost Bono would be willing to pay for this project? (Do not include the dollar sign ($).Round your answer to 2 decimal places (e.g., 32.16).)  

  

  Present value $