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Ritter Corporation can invest in one of two mutually exclusive machines that will make a product it needs for the next 4 years.  Machine A costs $9 million but realizes after-tax inflows of $7.0 million per year for 2 years, after which it must be replaced.  Machine B costs $14 million and realizes after-tax inflows of $5.8 million per year for 4 years.  Based on the firm’s cost of capital of 8 percent, the NPV of Machine B is $5,210,336, with an equivalent annual annuity (EAA) of $1,573,109 per year.  Calculate the EAA of Machine A. Compare your result to that of Machine B and decide which to recommend.

Plummer Industries plans to issue a $100 par perpetual preferred stock with a fixed annual dividend of 12 percent of par.  It would sell for $101.40, but flotation costs would be 5 percent of the market price.  What is the percentage cost of preferred stock after taking flotation costs into account?

A firm with a 12.5 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$12,000 $5,400 $4,600 $4,000 Project Y: -$11,000 $5,700 $5,700 $5,300 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

The internal rate of return of a capital investment ______________.

Hendrickson Industries is considering the following independent projects for the coming year: Project RequiredInvestment ExpectedRate of Return Risk X $8 million 13.5% High Y   4 million 10.0% Average Z   3 million   7.5% Low Hendrickson’s WACC is 10.5 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 Hendrickson accept assuming it faces no capital constraints?

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: -$6,000 $2,000 $2,900 $2,900 $2,900 Calculate the project’s profitability index (PI).

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: -$14,000 $5,200 $6,200 $6,400 $5,500 Calculate the project’s profitability index (PI).

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: -$6,000 $2,900 $2,900 $2,000 $2,500 Calculate the project’s payback period.

A firm with a 12 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: -$5,000 $2,200 $2,300 $2,300 $1,700 Calculate the project’s discounted payback period.

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: -$11,000 $3,500 $4,800 $4,200 $5,000 Calculate the project’s payback period.