problem1. You estimate that x Inc. stock has beta of 0.86 and the annual expected return of 10.5 percent. The annual risk-free rate of return is 3.2 percent and annual market rate of return is 11.2 percent. Is this stock underpriced?
problem2. Your firm is contemplating the purchase of new $600,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5 year life. It will be value $64,000 at the end of that time. You will save $230,000 before taxes per year in order processing costs, and you will be capable to reduce working capital by $79,000 (this is a one-time lessening). When the tax rate is 30 percent, what is IRR for this project?
problem3. Franks is looking at the new sausage system with installed cost of $520,000. This cost will be depreciated straight-line to zero over the project’s 5 year life, at the end of which the sausage system can be scrapped for $78,000. The sausage system will save the firm $200,000 per year in pre-tax operating costs, and the system needs an initial investment in net working capital of $37,000. When the tax rate is 30 percent and the discount rate is 8 percent, what is NPV of this project?
problem4. Comet Powder Company has bought a piece of equipment costing $100,000. It is anticipated to generate a ten-year stream of benefits amounting to $16,273 per year. Find out the rate of return Comet expects to earn from this equipment.