Calculate the following values for a project that requires

Calculate the following values for a project that requires

Subject: Business    / Finance
Question

1.) Calculate the following values for a project that requires an initial investment of $38,370 and has equal annual cash inflows of $10,000 each year for the next 8 years. Assume a cost of capital of 14%. You must show your work in formulas.

a. Payback period

b. Net present value

c. Internal rate of return

2.)What is the maximum price you would pay for a bond given the following information? The bond has a 7.5% coupon rate, it matures in 20 years, it pays interest annually, and it will pay the holder $1,000 upon maturity. You require a rate of return of 5% compounded annually.

3.)Given the following marginal tax schedule, what would be the tax on $95,000 of taxable income?

$0 to 50,000 15%

50,001 to 75,000 25%

75,001 to 100,000 34%

100,001 to 335,000 39%

4.)DEF stock cost $80 and pays a $4 annual dividend. If you expect to sell the stock after 5 years for $100, what is your anticipated holding period return on this investment?

5.)What is the EOQ for a firm that annually sells 8,000 units when the cost of placing an order is $4 and the carrying costs are $3 a unit.

6.)Estimating weighted cost of capital

Assume the following percentage capital structure is considered optimal for this firm.

Debt .50

Preferred stock .10

Common equity .40

The firm has estimated the after tax cost of each source of funds. Debt costs .07, preferred stock .11, retained earnings .20 and new common stock .22. The firm is operating under conditions of capital rationing and therefore will not sell new stock to the public. What is the weighted cost of capital for this firm?

7.) Use the data in the following table to compute the percentage change in EBIT that would occur if sales were to increase by 10%.

Sales $7,000

Less Variable cost $1,000

Less Fixed cost $3,000

EBIT $3,000

Less interest $1,000

Profit before tax $2,000

Less tax $800

Net Profit $1,200

8.) What is the maximum price you would pay for the following preferred stocks given that your required rate of return on preferred stock is 7%?

A. CCA Inc. pays dividends of $8 annually and has a par value of $100.

B. NCE Inc. pays dividends of $8 annually and has a par value of $100 with a mandatory retirement after 20 years.

9.) You are evaluating a project that requires an initial investment of $225,000 and has equal annual cash inflows of $85,000 each year for the next five years. What is the payback period?

10.) What is the maximum price you would pay for a common stock given that the risk free rate of return is 4%, the current dividend is $6.00, the return on the average stock in the market is 11%, the growth rate in dividends for the stock is 4% per year, and the beta for the stock is 1.3?

11.) For each of the following ratios indicate whether the firm’s ratios are good or poor as compared to industry averages by placing a check in the correct column.(2 points each)

Company Industry Good Poor

Inventory turnover 2.5 4

Average collection period of receivables 8days 16 days

Quick ratio 1.1 3

Return on assets 6.1% 4.0%

Debt Ratio 75% 50%

12.) You require $20,000 in 8 years for a down payment on a house. You are planning on depositing equal annual payments in an account earning 4% at the end of each year for the next 8 years. What is the dollar value of the payments required to reach your goal of $20,000?

13.) I have an investment that will pay me $20 every quarter for the next 5 years. Assuming that I want a 12% return compounded quarterly, what price should I pay for the investment?

14.) If the price of the European euro is $1.6365 (quoted at $1.6365 / euros), how many euros are necessary to purchase $1.00?