Consider a project with a cost of $1000, with the following expected cash inflows, and a WACC of 16%.

YEAR 1 $300--Year 2 $400- year 3 $300- Year 4 $500

Show your calculations by way of formulas, numerical values and if you like also by EXCEL for the following.

A. Calculate the present value of cash inflows.

B. Calculate the net present value of cash inflows.

C. Calculate the internal rate of return IRR.

D. Calculate the modified internal rate of return MIRR.

E. You will notice that IRR and MIRR are different in numerical values. Explain (in 5 lines) as to why they are different.

F. If you have to make a decision solely based on IRR or MIRR, which one would you choose and why? Explain in 5 lines.

Make sure you include your calculations by way of formulas, numerical values

Do we need to know the cost of equity to calculate the WACC?

If a company’s cost of capital is 8.5 % and by implementing a new software systems they can save 420,000.00 per year for three years and then the software will be obsolete. The initial cost is 401,231.00 this amount includes 200,000 in working capital, and their tax rate is 38%.

19. The NPV is between: A. 500,000 & 700,000 C. 750,000& 900,000 E.1,000,000 & 1,200,000 B. 350,000 & 500,000 D. 10,000 & 49,000

20. The NPV is between : A. 500,000 & 700,000 C. 750,000 & 900,000 E. 1,000,000 & 1,200,000 B. 350,000 & 500,000 D. 10,000 & 49,000

21. The company holds all the risk in Firm commitment underwriting. A. True B. False

22. The market risk premium always stays the same. A. True B. False

23. In the constant dividend growth model D1 represents A. The last dividend paid B. The growth rate of dividends C. The price plus the dividend D. The average dividend E. None of the above

1. What are flotation costs and why must they be included in the initial cost of a project? Explain in detail.

Transrail is bidding on a project that it figures will cost $400,000 to perform. Using a 25% markup, it will charge $500,000, netting a profit of $100,000. However, it has been learned that another company, Rail Freight, is also considering bidding on the project. If Rail Freight does submit a bid, it figures to be a bid about $470,000. Transrail really wants this project and is considering a bid with only a 15% markup to $460,000 to ensure winning regardless of whether or not Rail Freight submits a bid.

a) Do a profit payoff table from Transrail's point of view

b) For this payoff table find Transrail's optimal decision using (1) the pessimistic approach, (2) the optimistic approach, and (3) minimax regret approach.

c) If Rail Freight is known to submit bids on only 25% of the projects it considers, what decision should Transrail make?

d)Given the information in (c), what is EVPI?

Equipment with an original cost of $51,422 and accumulated depreciation of $33,306 was sold at a loss of $5,155. As a result of this transaction, cash would

a.increase by $12,961

b.increase by $51,422

c.decrease by $5,155

d.decrease by $33,306

(Individual or component costs of capital​)

Compute the cost of the​ following:

a. A bond that has $1,000 par value​ (face value) and a contract or coupon interest rate of 9 percent. A new issue would have a floatation cost of 6 percent of the ​$1,140market value. The bonds mature in 14 years. The​ firm's average tax rate is 30 percent and its marginal tax rate is 24 percent.

b. A new common stock issue that paid a ​$1.40 dividend last year. The par value of the stock is​ $15, and earnings per share have grown at a rate of 11 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant​ dividend-earnings ratio of 30 percent. The price of this stock is now $31, but 7 percent flotation costs are anticipated.

c. Internal common equity when the current market price of the common stock is ​$42. The expected dividend this coming year should be $3.10​, increasing thereafter at an annual growth rate of 9 percent. The​ corporation's tax rate is 24 percent.

d. A preferred stock paying a dividend of 8 percent on a ​$110 par value. If a new issue is​ offered, flotation costs will be 13 percent of the current price of ​$166.

e. A bond selling to yield 9 percent after flotation​ costs, but before adjusting for the marginal corporate tax rate of 24 percent. In other​ words, 9 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows​ (principal and​ interest).

a. What is the​ firm's after-tax cost of debt on the​ bond?