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1. We have a $100,000 line of credit with a 15% compensating balance requirement. The quoted interest rate is 8%. We need to borrow $40,000

1. We have a $100,000 line of credit with a 15% compensating balance requirement. The quoted interest rate is 8%. We need to borrow $40,000 for inventory for one year. How much do we need to borrow?

2. You are considering a project that will require an initial outlay of $200,000. This project has an expected life of five years and will generate after-tax cash flows to the company as a whole of $60,000 at the end of each year over its five-year life. Thus, the free cash flows associated with this project look like this:

Given a required rate of return of 10% percent, calculate the following:

  1. Profitability index
  2. IRR

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