1. A capital budgeting project is expected to have the following cash flows:

Year Cash Flows

0 -$1,000,000

1 $400,000

2 $400,000

3 $200,000

4 $400,000

What is the projects internal rate of return?

16.00%

8.99%

21.86%

15.54%

2. A capital budgeting project is expected to have the following cash flows:

Year Cash Flows

0 -$850,000

1 $300,000

2 $400,000

3 $500,000

What is the projects net present value at an 18% required rate of return?

-$4,173.50

$10,800.96

-$18,725.33

$350,000.00

3.Luthers Famous Barbeque has estimated the following cost of debt (before-tax) and cost of equity.

Proportion of Debt Before-tax Cost of Debt Cost of Equity

30% 7.0% 11.1%

40% 7.3% 11.9%

50% 8.4% 13.7%

What is the cost of capital at Luthers optimal capital structure given the above information and a 40% effective tax rate?

8.71%

8.89%

9.03%

9.37%