Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at the end of that time. You will save $165,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $60,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 24 percent, what is the IRR for this project?

Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

 

 

You are working on a bid to build two city parks a year for the next three years. This project requires the purchase of $185,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the 3-year project life. The equipment can be sold at the end of the project for $34,000. You will also need $20,000 in net working capital for the duration of the project. The fixed costs will be $18,000 a year and the variable costs will be $168,000 per park. Your required rate of return is 15 percent and your tax rate is 34 percent. What is the minimal amount you should bid per park? (Round your answer to the nearest $100)

Summer Tyme, Inc., is considering a new 3-year expansion projectthat requires an initial fixed asset investment of $1.62 million.The fixed asset will be depreciated straight-line to zero over its3-year tax life, after which time it will be sold for $126,000. Theproject requires an initial investment in net working capital of$180,000, all of which is recovered at the end of the project. Theproject is estimated to generate $1,440,000 in annual sales, withcosts of $576,000. The tax rate is 33 percent and the requiredreturn on the project is 11 percent.

Shadow Corp. has no debt but can borrow at 6.8 percent. Thefirm’s WACC is currently 8.6 percent, and the tax rate is 35percent.

a. What is the firm’s cost of equity? (Do notround intermediate calculations. Enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)

Cost of equity %

b. If the firm converts to 30 percent debt, what willits cost of equity be? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)

Cost of equity %

c. If the firm converts to 40 percent debt, what willits cost of equity be? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)

Cost of equity %

d-1 If the firm converts to 30 percent debt, what willthe company's WACC be? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)

WACC %

d-2 If the firm converts to 40 percent debt, what willthe company's WACC be? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)

WACC %