Quiz5Solution

# Quiz5Solution - Quiz #5 Solutions: Module 3, Chapters 10-12...

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Quiz #5 Solutions: Module 3, Chapters 10-12 FIN 5405 J. Houston 1. Externalities Answer: b 2. NPV (uneven cash flows; 4 years) Answer: e WACC: 10.00% 0 1 2 3 4 Cash flows -\$1,000 \$400 \$405 \$410 \$415 Answer: NPV \$289.84 WACC: 10.0% 3. Payback (nonconstant cash flows; 5 years) Answer: e 0 1 2 3 4 5 Cash flows -\$1,000 \$300 \$310 \$320 \$330 \$340 Answer: Cumulative CF -\$1,000 -\$700 -\$390 -\$70 \$260 \$600 Payback = 3.21 - - - - 3.21 - 4. Component cost of debt Answer: a Coupon rate 8.00% Periods/year 4 Maturity (yr) 25 Bond price \$900.90 Par value \$1,000 Tax rate 40% Calculator inputs: N 100 PV -\$900.90 PMT \$20 FV \$1,000 I/YR 2.25% times 4 = 9.0% = Before-tax cost of debt 5.40% = After-tax cost of debt (A-T r d ) for use in WACC 5. Capital components Answer: e

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6. MIRR (uneven cash flows; 3 years) Answer: e WACC: 10.00% 0 1 2 3 Cash flows -\$1,000 \$350 \$370 \$390 Answer: TV: Compounded values: \$423.50 \$407.00 \$390.00 \$1,220.50 MIRR = 6.87% found as discount rate that equates PV of TV to cost MIRR = 6.87% Alternative calculation, with Excel
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## This note was uploaded on 12/30/2010 for the course FIN 5405 taught by Professor Tapley during the Spring '08 term at University of Florida.

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Quiz5Solution - Quiz #5 Solutions: Module 3, Chapters 10-12...

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