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Scott is considering a project that will produce cash inflows of $2,900 per year for 3 years. The required rate of return is 15.4 percent and the initial cost is $6,800. What is the discounted payback period?

A stock had returns of 12.4 percent, 16.6 percent, 10.2 percent, 19.0 percent, −15.7 percent, and 6.3 percent over the last six years. What is the geometric average return on the stock for this period?

Home & More is considering a project with cash flows of −$368,000, $133,500, −$35,600, $244,700, and $258,000 for Years 0 to 4, respectively. Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 14.6 percent? Why or why not?

What is the expected return on this portfolio? Stock Expected Return Number of Shares Price per Share A −.02 1,400 $15.57 B .11 2,800 $57.08 C .05 3,600 $27.75

A stock has a beta of 1.08 and an expected return of 13.2 percent. A risk-free asset currently earns 1.2 percent. The beta of a portfolio comprised of these two assets is .94. What percentage of the portfolio is invested in the stock?

Rachel’s has a $45,000 line of credit with an interest rate of 7.4 percent and a compensating balance requirement of 2.75 percent. The compensating balance is based on the total amount borrowed with funds being held in an interest-free account. What is the effective annual interest rate if the company requires $28,000 of borrowed funds for one year?

What is the beta of the following portfolio? Stock Amount Invested Security Beta A $6,000 1.37 B $17,900 .95 C $2,750 1.48

Suppose the common stock of McLaughlin Corporation has a beta of 1.35 and an expected return of 11.05 percent. The risk-free rate of return is 3.25 percent while the inflation rate is 2.8 percent. What is the expected market risk premium?

Rock Haven has a proposed project that will generate sales of 2,055 units annually at a selling price of $45 each. The fixed costs are $24,400 and the variable costs per unit are $15.15. The project requires $41,800 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the 4-year life of the project. The salvage value of the fixed assets is $11,500 and the tax rate is 21 percent. What is the operating cash flow?

Chapman Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine for $390,000 is estimated to result in $135,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a pretax salvage value at the end of the project of $198,000. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for Years 1 to 6, respectively. Ignore bonus depreciation. The press also requires an initial investment in inventory of $8,000, along with an additional $1,500 in inventory for each succeeding year of the project. The inventory will return to its original level when the project ends. The shop’s tax rate is 21 percent and its discount rate is 16 percent. Should the firm buy and install the machine? Why or why not?