A new security system has a price-tag of $7,000.00, but should save your company $3,450.00 each year for the next 10 years in reduced thefts. What is the NPV of the security system? Use a discount rate of 10.80%.
$13,489
A rider-mower costs $594.00 and generates an annual after-tax cash flow of $330.00 for your landscaping business. What is the payback period of the mower?
1.80
A new transmission in your truck will cost $7,500.00. Luckily, it should recude maintenance expense by $3,525.00 each year for the next 10 years. What is the profitability index of the transmission? Use a discount rate of 12.30%.
2.62
A new transmission in your truck will cost $5,000.00. Luckily, it should recude maintenance expense by $3,600.00 each year for the next 10 years. What is the IRR of the transmission?
71.68%
Given the following cash flows for two mutually exclusive projects, and a required rate of return of 12%, what is the EAA for Project B?
Year
Project A
Project B
0
-580,000
-580,000
1
290,000
130,000
2
290,000
130,000
3
150,000
230,000
4
150,000
230,000
5
33,652
Driver Products recently paid its annual dividend ($2.00), and reported an ROE of 15%, of which 50% is paid as dividends. The stock has a beta of 1.44. The current risk-free rate is 2.50% and the market return (RM) is 11.00%. Assuming that CAPM holds, wha
$29.70
APEX Corporation issued $50.00 par-value preferred stock that pays an annual dividend of $9.00. Based on your research, you estimate that the stock has a required rate of 17.00%. What is the intrinsic value of this preferred stock?
$52.94
Sparrow Products Industries is currently selling for $73.00. It just paid its annual dividend of $1.00 after reporting an ROE of 15%, of which 50% is paid as dividends. What is the expected return of this stock?
8.97%
Alistar Inc. recently issued $75.00 par-value preferred stock that pays a 8.00% dividend rate per year. If the stock is currently selling for $83.00, what is the expected return of this preferred stock?
7.23%
Crossroad Corporation is trying to decide whether to invest to automate a production line. If the project is accepted, labor costs will decrease by $165,000 per year. However, other cash operating expenses will increase by $86,000 per year. The equipment
$60,980
Suppose Hampton Corporation sells land for $8,000,000. Hampton paid $5,000,000 for the land several years ago. Assuming a marginal tax rate of 34%, calculate the after-tax cash flow resulting from the land sale.
6,980,000
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine
$-16,752
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine
$9,555
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine
$98,934
According to the survey in Module 8, which capital budgeting technique were highly levered firms more likely to use than firms with little debt?
NPV and IRR
Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments:
Debt: Capital can be
10.4%
Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments:
Debt: Capital can be
9.9%
Palmetto Corporation has preferred stock that pays a 9% dividend. If the firm issues new shares, each share will be sold for the $50 par value. Flotation costs will be 3 percent of the stock price. The firm's marginal tax rate is 34 percent. What is the f
9.3%
Hampton Corporation has a beta of 1.3 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 6%. Estimate the firm's cost of internal equity.
12.5%
A firm has preferred stock that pays an 8 percent dividend on a $75 par value. If a new issue is offered, flotation costs will be 3 percent of the current market price of $80. The firm's marginal tax rate is 35 percent. What is the firm's cost of preferre
7.7%
A new security system has a price-tag of $7,000.00, but should save your company $3,450.00 each year for the next 10 years in reduced thefts. What is the NPV of the security system? Use a discount rate of 10.80%.
$13,489
A capital project costing $6,000.00 will generate annual savings of $3,775.00 for the foreseeable future. What is the payback period of the project?
1.59
A new security system has a price-tag of $8,000.00, but should save your company $3,600.00 each year for the next 10 years in reduced thefts. What is the profitability index of the security system? Use a discount rate of 10.70%.
2.68
Given the following cash flows for two mutually exclusive projects, and a required rate of return of 12%, which of the following statements is true?
Year
Project A
Project B
0
-300,000
-300,000
1
150,000
70,000
2
150,000
70,000
3
80,000
120,000
4
80,000
1
Project A should be accepted because it has the highest EAA.
StoreAge Inc. recently paid its annual dividend ($3.00), and reported an ROE of 15%, of which 50% is paid as dividends. The stock has a beta of 1.28. The current risk-free rate is 2.60% and the market risk premium (RM - RF) is 7.00%. Assuming that CAPM ho
$79.43
Pacor Industries recently paid its annual dividend ($2.00). Dividends have consistently grown at a rate of 2.70%. Analysts estimate that the stock has a beta of 1.00. The current risk-free rate is 2.30% and the market return (RM) is 10.10%. Assuming that
$27.76
Sparrow Products Industries is currently selling for $57.00. It just paid its annual dividend of $4.00 after reporting an ROE of 15%, of which 50% is paid as dividends. What is the expected return of this stock?
15.04%
A $63,000 machine with a 7-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $75,000, with a 5-year class life. The new machine will not increase sales, but will decrease operating
(26,700)
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine
28.2%
According to the reading in Module 8, which capital budgeting technique was most often used by those surveyed?
IRR
Bay Beach Industries wants to maintain their capital structure of 40% debt and 60% equity. The firm's tax rate is 34%. The firm can issue the following securities to finance the investments:
Bonds: Mortgage bonds can be issued at a pre-tax cost of 9 perce
14.87%
Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments:
Debt: Capital can be
13%
Palmetto Corporation has preferred stock that pays a 9% dividend. If the firm issues new shares, each share will be sold for the $50 par value. Flotation costs will be 3 percent of the stock price. The firm's marginal tax rate is 34 percent. What is the f
9.3%
Hampton Corporation has a beta of 1.6 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 6%. Estimate the firm's cost of internal equity.
14.0%
By purchasing training software for $8,000.00, you can eliminate other training costs of $3,675.00 each year for the next 10 years. What is the NPV of the software? Use a discount rate of 12.40%.
$12,428
You have purchased a canning machine for $7,000.00. You expect the machine to save your company $3,775.00 each year for the next 10 years. What is the profitability index of the machine? Use a discount rate of 10.90%.
3.19
A new transmission in your truck will cost $5,500.00. Luckily, it should reduce maintenance expense by $3,650.00 each year for the next 10 years. What is the IRR of the transmission?
65.94%
SanData Inc. recently paid its annual dividend ($3.00). Dividends have consistently grown at a rate of 3.00%. You estimate that the stock has a required rate of 17.00%. What is the intrinsic value of this stock?
$22.07
Broden, Inc. recently issued $70.00 par-value preferred stock that pays an annual dividend of $19.00. If the stock is currently selling for $50.00, what is the expected return of this preferred stock?
38.00%
Sparrow Products Industries is currently selling for $80.00. It just paid its annual dividend of $2.00 after reporting an ROE of 15%, of which 50% is paid as dividends. What is the expected return of this stock?
10.19%
A $63,000 machine with a 7-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $75,000, with a 5-year class life. The new machine will not increase sales, but will decrease operating
12,600
Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments:
Debt: Capital can be
13%
Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments:
Debt: Capital can be
10.4%
Hampton Corporation has a beta of 1.3 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 4%. Estimate the firm's cost of internal equity.
13.1%
A firm has preferred stock that pays an 8 percent dividend on a $75 par value. If a new issue is offered, flotation costs will be 3 percent of the current market price of $80. The firm's marginal tax rate is 35 percent. What is the firm's cost of preferre
7.7%
Hampton Corporation has a beta of 1.6 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 6%. Estimate the firm's cost of internal equity.
14.0%
A new transmission in your truck will cost $9,500.00. Luckily, it should reduce maintenance expense by $3,150.00 each year for the next 10 years. What is the NPV of the transmission? Use a discount rate of 10.60%.
$9,366
A rider-mower costs $599.00 and generates an annual after-tax cash flow of $370.00 for your landscaping business. What is the payback period of the mower?
1.62
You have purchased a canning machine for $6,500.00. You expect the machine to save your company $1,425.00 each year for the next 10 years. What is the IRR of the machine?
17.58%
Pacor Industries recently paid its annual dividend ($2.00). Dividends have consistently grown at a rate of 2.20%. Analysts estimate that the stock has a beta of 1.12. The current risk-free rate is 2.40% and the market return (RM) is 10.70%. Assuming that
$21.52
Alistar Inc. recently issued $75.00 par-value preferred stock that pays a 7.00% dividend rate per year. If the stock is currently selling for $69.00, what is the expected return of this preferred stock?
7.61%
Guano Industries is currently selling for $94.00. It just paid its annual dividend of $4.00, which have consistently grown at a rate of 3.30%. What is the expected return of this stock?
7.70%
Eastern Corporation has $21,000,000 in equipment that has a 15 year class life. The equipment is 8 years old. Eastern is selling the equipment for $10,000,000. Eastern uses simplified straight line depreciation (zero salvage value) and has a marginal tax
9,932,000
A firm has preferred stock that pays an 8 percent dividend on a $75 par value. If a new issue is offered, flotation costs will be 3 percent of the current market price of $80. The firm's marginal tax rate is 35 percent. What is the firm's cost of preferre
7.7%
Hampton Corporation has a beta of 1.3 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 4%. Estimate the firm's cost of internal equity.
13.1%
Hampton Corporation has a beta of 1.3 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 6%. Estimate the firm's cost of internal equity.
12.5%
By purchasing training software for $5,000.00, you can eliminate other training costs of $3,200.00 each year for the next 10 years. What is the NPV of the software? Use a discount rate of 10.20%.
$14,494
By automating its shop floor, your company expects to save $54,000.00 annually. If the automation costs $450,000.00, what is the payback period of the automation?
8.33
By purchasing training software for $7,000.00, you can eliminate other training costs of $3,450.00 each year for the next 10 years. What is the profitability index of the software? Use a discount rate of 10.40%.
2.98
A new security system has a price-tag of $8,000.00, but should save your company $3,000.00 each year for the next 10 years in reduced thefts. What is the IRR of the security system?
35.73%
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine
$98,934
Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments:
Debt: Capital can be
13%
You have purchased a canning machine for $5,000.00. You expect the machine to save your company $3,325.00 each year for the next 10 years. What is the NPV of the machine? Use a discount rate of 10.80%.
$14,747
A new security system has a price-tag of $7,500.00, but should save your company $3,275.00 each year for the next 10 years in reduced thefts. What is the IRR of the security system?
42.40%
INet Library issued $85.00 par-value preferred stock that pays a 7.25% dividend rate per year. The stock has a beta of 1.13, and the current risk-free rate is 2.10% and the market return (RM) is 11.20%. Assuming that CAPM holds, what is the intrinsic valu
$49.77
Broden, Inc. recently issued $60.00 par-value preferred stock that pays an annual dividend of $17.00. If the stock is currently selling for $70.00, what is the expected return of this preferred stock?
24.29%
Alistar Inc. recently issued $90.00 par-value preferred stock that pays a 8.25% dividend rate per year. If the stock is currently selling for $85.00, what is the expected return of this preferred stock?
8.74%
Heritage Corporation is trying to decide whether to invest in equipment to manufacture a new product. If the investment project is accepted, sales revenue will increase by $65,000 per year and materials costs will decrease by $16,000 per year. The equipme
58,220
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine
$98,934
Bay Beach Industries wants to maintain their capital structure of 40% debt and 60% equity. The firm's tax rate is 34%. The firm can issue the following securities to finance the investments:
Bonds: Mortgage bonds can be issued at a pre-tax cost of 9 perce
10.96%
Hampton Corporation has a beta of 1.3 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 4%. Estimate the firm's cost of internal equity.
13.1%
A firm has preferred stock that pays an 8 percent dividend on a $75 par value. If a new issue is offered, flotation costs will be 3 percent of the current market price of $80. The firm's marginal tax rate is 35 percent. What is the firm's cost of preferre
7.7%
Joliet Company is planning to issue $1,000 par value bonds that have a coupon rate of 9.6%. The bonds will be sold at a market price of $1,120. Flotation costs will amount to 4 percent of market value. The bonds would mature in 15 years and coupon payment
5.65%
You have purchased a canning machine for $9,500.00. You expect the machine to save your company $3,600.00 each year for the next 10 years. What is the NPV of the machine? Use a discount rate of 11.90%.
$10,924
By purchasing training software for $5,500.00, you can eliminate other training costs of $3,425.00 each year for the next 10 years. What is the profitability index of the software? Use a discount rate of 10.60%.
3.73
X-Ray Inc. recently paid its annual dividend ($3.00), and reported an ROE of 15%, of which 50% is paid as dividends. Based on your analysis, you estimate that the stock has a required rate of 15.50%. What is the intrinsic value of this stock?
$40.31
Driver Products recently paid its annual dividend ($4.00), and reported an ROE of 15%, of which 50% is paid as dividends. The stock has a beta of 1.15. The current risk-free rate is 2.70% and the market return (RM) is 11.00%. Assuming that CAPM holds, wha
$90.62
According to the survey in Module 8, which capital budgeting technique were highly levered firms more likely to use than firms with little debt?
IRR
NPV
Sensitivity analysis
Bay Beach Industries wants to maintain their capital structure of 40% debt and 60% equity. The firm's tax rate is 34%. The firm can issue the following securities to finance the investments:
Bonds: Mortgage bonds can be issued at a pre-tax cost of 9 perce
11.69%
A new transmission in your truck will cost $9,500.00. Luckily, it should reduce maintenance expense by $3,975.00 each year for the next 10 years. What is the NPV of the transmission? Use a discount rate of 10.70%
$14,207
By purchasing training software for $7,500.00, you can eliminate other training costs of $3,300.00 each year for the next 10 years. What is the IRR of the software?
42.75%
Given the following cash flows for two mutually exclusive projects, and a required rate of return of 12%, what is the EAA for Project A?
Year
Project A
Project B
0
-580,000
-580,000
1
290,000
130,000
2
290,000
130,000
3
150,000
230,000
4
150,000
230,000
5
36,943
X-Ray Inc. recently paid its annual dividend ($4.00), and reported an ROE of 15%, of which 50% is paid as dividends. Based on your analysis, you estimate that the stock has a required rate of 17.00%. What is the intrinsic value of this stock?
$45.26
Colonnade Corporation purchased a machine for use in the firm's manufacturing process. The original cost of the machine was $1,800,000. The machine has a class life of 15 years, but after 13 years, the firm has decided to sell the machine for $320,000. If
$27,200 payment