1) Determine NPV and PI of the project which costs $1,500 and returns= $800 in year one and= $850 in year two. Suppose the project’s cost of capital is 8%.
2) For the given projects, find out NPV, IRR, MIRR, profitability index, and payback. If these projects are mutually exclusive, which one(s) must be done? If they are independent, which one(s) must be undertaken?
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 10% 12% 15% 8%
rate
i) AQ&Q has EBIT of $2 million, total assets of $10 million, stockholders’ equity of $4 million, and pretax interest expense of 10%.
a) Find out AQ&Q’s indifference level of EBIT?
b) Given its present situation, might it benefit from increasing or decreasing its use of debt? Describe.
c) Assume we are told AQ&Q’s average tax rate is 40%. How does this have an effect on your answers to (a) and (b)?