Kuhn Microcomputers is considering the following independent…

Kuhn Microcomputers is considering the following independent projects for the coming year: Project RequiredInvestment ExpectedRate of Return Risk X $8 million 12.5% High Y   6 million   9.0% Average Z   3 million   7.5% Low Kuhn’s WACC is 10 percent, but it adjusts for risk by adding 2 percent to the WACC for high-risk projects and subtracting 2 percent for low-risk projects.  Which project(s) should Kuhn accept assuming it faces no capital constraints?

Liberty Services is now at the end of the final year of a pr…

Liberty Services is now at the end of the final year of a project. The equipment originally cost $22,500, of which 75% has been depreciated. The firm can sell the used equipment today for $6,000, and its tax rate is 40%. What is the equipment’s after-tax salvage value for use in a capital budgeting analysis? Note that if the equipment’s final market value is less than its book value, the firm will receive a tax credit as a result of the sale.

A firm with a 12.5 percent cost of capital is considering a…

A firm with a 12.5 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$8,000 $3,700 $3,800 $3,900 $2,500 Calculate the project’s payback period.

Li & Sons’ common stock currently trades at $70 a share.  It…

Li & Sons’ common stock currently trades at $70 a share.  It is expected to pay an annual dividend of $3.85 a share at the end of the year (D1 = $3.85), and the constant growth rate is 6.4 percent a year.  What is the company’s cost of common equity if all of its equity comes from retained earnings?

A firm with a 9.5 percent cost of capital is considering a p…

A firm with a 9.5 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$14,000 $4,800 $5,300 $5,000 $5,200 Calculate the project’s internal rate of return (IRR).

A firm with a 9 percent cost of capital is considering a pro…

A firm with a 9 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$7,000 $2,500 $3,200 $3,400 $2,500 Calculate the project’s profitability index (PI).