Chapter 10 - ManagerialFinance Chapter10 1 Exercises and...

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Managerial Finance Chapter 10   1 Exercises and Problems 1. What is the payback if investment cost is $45,000 and the after-tax benefit is $2,000? Payback = = Payback = = 22.5 years 3. Joe Morton buys a piece of equipment for $200,000. He puts down $40,000 and finances $160,000. Joe’s opportunity cost is 4 percent, and the lender’s interest rate is 8 percent. Find the weighted average cost of capital (WACC). Calculations of WACC: Owners’ equity + amount financed = Total amount paid $40,000 + $160,000 = $200,000 Equity proportion = = = 0.20 Debt proportion = = = 0.80 WACC = (Equity cost) (Equity proportion) + (Debt cost) (Debt proportion) = (0.04) (0.20) + (0.08) (0.80) = 0.0080 + 0.0640 = 0.0720, or 7.20% 5. If the 10 percent present value ordinary annuity factor (PVAF) is 8.5136 and the 11 percent, PVAF is 7.9633, a PVAF of 8.1234 correlates to an internal rate of return (IRR) of ________? 10.5503 = = = ? = = 0.7091 IRR = i 1 +? = 10% + 0.7091% ≈ 10.71% 7. Kay Sadilla is considering investing in a franchise that requires an initial outlay of
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Chapter 10 - ManagerialFinance Chapter10 1 Exercises and...

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