ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 8 years to maturity that is quoted at 109.5...
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  a.What is the company's pretax cost of debt? (Do not round intermediate calculations

and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b.If the tax rate is 25 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)


1c. H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,300,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,890,000 in annual sales, with costs of $1,910,000. Assume the tax rate is 21 percent and the required return on the project is 12 percent. What is the project's NPV?


1d. H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $3,050,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $3,310,000 in annual sales, with costs of $2,330,000. If the tax rate is 23 percent, what is the OCF for this project? 



1e. You're trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $24.6 million, which will be depreciated straight-line to zero over its four-year life.

 If the plant has projected net income of $2,115,000, $2,295,000, $2,334,000, and $1,476,000 over these four years, what is the project's average accounting return (AAR)? 


1f. The Pierce Co. just issued a dividend of $2.80 per share on its common stock. The company is expected to maintain a constant 7 percent growth rate in its dividends indefinitely. If the stock sells for $43.60 a share, what is the company's cost of equity?


Consider the following cash flows: 

Year- Cash Flow

0-$7,200        

1- 2,050        

2- 4,500        

3-1,850       

4- 1,550         

What is the payback period for the cash flows in years? 


Your firm is contemplating the purchase of a new $555,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 7-year life. It will be worth $84,000 at the end of that time. You will save $197,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $53,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 23 percent, what is the IRR for this project?

Top Answer

1.a. I= 6.08% b. After-tax cost= 4.56% 1c.... View the full answer

1.png

Sales
un
3,310,000
Less:
Costs
2,330,000
Depreciation
1,016,667
=3050000/3
EBIT
(36,667)
Less: Tax @ 23%
(8,433)
Net income
(28,233)
Add: Depreciation
1,016,667
Operating cash flow
$ 988,433

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