Reference no: EM132186002

Questions -

Q1) PDQ, Inc., expects EBIT to be approximately $12.3 million per year for the foreseeable future, and it has 40,000 20-year, 10 percent annual coupon bonds outstanding. (Use below Table)

Table - Corporate Tax Rates
Taxable Income	Tax Rate
$0 - $50,000	15%
$50,001 - 75,000	25
75,001 - 100,000	34
100,001 - 335,000	39
335,001 - 10,000,000	34
10,000,001 - 15,000,000	35
15,000,001 - 18,333,333	38
18,333,334+	35

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

Q2) JaiLai Cos. Stock has a beta of 0.6, the current risk-free rate is 6.5 percent, and the expected return on the market is 13 percent.

What is JaiLai's cost of equity?

Q3) KatyDid Clothes has a $130 million (face value) 25-year bond issue selling for 104 percent of par that carries a coupon rate of 10 percent, paid semiannually.

What would be Katydid's before-tax component cost of debt?

Q4) Johnny Cake Ltd. Has 8 million shares of stock outstanding selling at $22 per share and an issue of $40 million in 10 percent annual coupon bonds with a maturity of 17 years, selling at 94.0 percent of par. Assume Johnny Cake's weighted-average tax rate is 34 percent, its next dividend is expected to be $3 per share, and all future dividends are expected to grow at 5 percent per year, indefinitely.

What is its WACC? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Share Outstanding	8,000,000
Price per share	$22.00
Face Value of outstanding bond issue	$40,000,000
Coupon rate on bonds	10%
Maturity of bonds	17
Price of Bonds (% of par)	94.00
Weighted-average tax rate	34.00%
Net expected dividend	$3.00
Expected dividend growth rate	5.00%

Complete the following analysis. Do not hard code values in your calculations.

Before-tax cost of equity -----------------?

Before-tax cost of debt -------------------?

Equity weight -------------------?

Debt weight ---------------------?

WACC ----------------------?

Q5) You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $16,500 to purchase and which will have OCF of -$1,700 annually throughout the vehicle's expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $24,000 to purchase and which will have OCF of -$900 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 13 percent, calculate the EAC. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

Which one should you choose?

• Scion
• Toyota

Q6) You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $95 initially, and then $140 per year in maintenance costs. Machine B costs $165 initially, has a life of three years, and requires $115 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine.

The discount rate is 12 percent and the tax rate is zero. Calculate the EAC.

Which one should you choose?

• Machine A
• Machine B

Q7) You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $95 initially, and then $140 per year in maintenance costs. Machine B Costs $165 initially, has a life of three years, and requires $115 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine.

The discount rate is 12 percent and the tax rate is zero. Calculate the EAC (Negative amounts should be indicated by a minus sign. Round your answers to 2 decmial places). Which one should you choose?

Machine A Life (Years)	2
Machine A initial cost	$95.00
Machine A maintenance cost	$140.00
Machine B life (Years)	3
Machine B initial cost	$165.00
Machine B maintenance cost	$115.00
Discount rate	12.00%
Tax rate	0.00%

Complete the following analysis. Do not hard code values in your calculations, and do not round intermediate calculations.

Year	Machine A CFs	Machine B CFs
0
1
2
3
4
5
6
7
8
9
10

EACa ----------------------------?

EACb -------------------------------?

Choice-------------------------------?

Q8) Compute the PI statistic for Project Z if the appropriate cost of capital is 6 percent.

Project Z
Time:	0	1	2	3	4	5
Cash flow	-$3,300	$730	$860	$1,030	$680	$480

Should the project be accepted or rejected?

Q9) Compute the MIRR statistic for Project J if the appropriate cost of capital is 9 percent.

Project J
Time:	0	1	2	3	4	5
Cash flow	-$1,700	$560	$1,830	-$590	$510	-$170

Should the project be accepted or rejected?

Q10) Compute the NPV for Project K if the appropriate cost of capital is 6 percent (Negative amount should indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places). Should the project be accepted or rejected?

Cost of capital - 6%

Time	Cash Flow
0	-$11,800
1	$5900
2	$6900
3	$6900
4	$5900
5	-$14800

Complete the following analysis. Do not hard code values in your calculations, and do not round intermediate calculations.

NPV--------------------------------------------?

Accept or reject decision------------------------------------?