1. BRAVO Company is considering an investment in a machine that would reduce annual labor costs by P30, 000. The machine has an expected life to 10 years with no salvage value. The machine would be depreciated according to the straight-line method over its useful life. The company's marginal tax rate is 30%. Assume the company pays P250, 000 for the machine. What is the expected internal rate of return on the machine?

a. less than 1%. c. between 8% and 9% b. between 3% and 4% d. between 17% and 18%

2. ASA Co. is considering an investment in a project that generates a profitability index of 1.3. The present value of the cash inflows on the project is P44, 000. What is the net present value of this project?

a. P10, 154 b.P13, 200 c.P33, 846 d.P57, 200

NIKE Inc. is interested in measuring its overall cost of capital and has gathered the following data. Under the terms described below, the company can sell unlimited amounts of all instruments.

NIKE can raise cash by selling P1, 000, 8%, 20- year bonds with annual interest payments. In selling the bonds an average premium of P30 per bond would be received, and the firm must pay floatation costs of P30 per bond. The after- tax cost of funds is estimated to be 4.8%

NIKE can sell 8% preferred stock at P105 per share. The cost of issuing and selling the preferred stock is expected to be P5 per share. Dividends per share is P8.

NIKE's common stock is currently selling for P100 per share. The firm expects to pay cash dividends of P7 per share next year, and the dividends are expected to remain constant. The stock will have to be underpriced by P3 per share, and floatation costs are expected to amount to P5 per share.

NIKE expects to have available P100, 000 of retained earnings in the coming year. Once the retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing.

NIKE's preferred capital structure is Long- term debts, 30%; Preferred Equity, 20%; Common Equity, 50%.

3. The cost of funds from sale of common Stocks is

a. 7.0% c. 7.6% b. 7.4% d. 8.1%

4.The cost of funds from retained earnings

a. 7.0% c. 7.6% b. 7.4% d. 8.1%

5.If NIKE needs a total of P200, 000, the firm's weighted average cost of capital would be

a. 4.8% c. 6.78% b. 6.54% d. 19.80%

6. If NIKE needs a total of P1, 000, 000, the firm's weighted average cost of capital would be

a. 4.8% c. 6.78% b. 6.54% d. 27.4