Question
1. Reed Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Should this project be
1.Reed Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Should this project be accepted or rejected?
WACC:
10.00%
Year
0
1
2
3
Cash flows
-$1,050
$450
$460
$470
2.Garner Inc. is considering a project that has the following cash flow data. What is the project's payback?
Year
0
1
2
3
Cash flows
-$350
$200
$200
$200
3.Companies generate income from their "regular" operations and from other sources like interest earned on the securities they hold, which is called non-operating income. Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was Lindley's operating income, or EBIT?
4.Wells Water Systems recently reported $8,250 of sales, $4,500 of operating costs other than depreciation, and $950 of depreciation. The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $750 to buy new fixed assets and to invest $250 in net operating working capital. How much free cash flow did Wells generate?
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