Question #1

A new machine will cost $100,000 and generate after-tax cash inflows of $35,000 for 4 years.

a. Find the (NPV) Net Present Value if the firm uses a 12% opportunity cost of capital.

b. What is the (IRR) Internal Rate of Return?

c. What is the Payback in years?

d. What is the Profitability Index?

Question #2

Calculate the (NPV) Net Present Value for the following capital budgeting proposal:

$100,000 initial cost, to be depreciated straight-line over 5 years to an expected salvage value of $5,000, 35% tax rate, $45,000 additional annual revenues, $15,000 additional annual expense, $8,000 additional investment in working capital, and 11% cost of capital. 

Question #3

Multiple Choice - Show calculations

(a). The weighted-average cost of capital, after tax, for a firm with a 65/35 debt/equity split, 8% cost of debt, 15% cost of equity, and a 35% tax rate would be:

A. 7.02%.

B. 8.63%. 

C. 10.80%.

D. 13.80%.