1. 1. You are considering a project with an initial cash outlay of $150,000 and expected free cash flows of $35,000 at the end of each year for 6 years. The required rate of return for this project is 9 percent. (6 Marks)

1. What is the projects payback period?
2. What is the projects NPV ?
3. What is the projects PI ?

What is the projects IRR ?

1. 1. Abdullah & Sons Corporation is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be $8,000,000, and the project would generate incremental free cash flows of $2,000,000 per year for 5 years. The appropriate required rate of return is 7 percent. (6 Marks)

1. Calculate the NPV and suggest that should the project be accepted?
2. Calculate the PI.
3. Calculate the IRR.
4. If Abdullah & Sons Corporation required rate of return is changed to 14 percent, then should this project be
5. accepted.

In early 2020, Exim Corporation issued new common stock at a market price of $25. Dividends last year were $1.50 and are expected to grow at an annual rate of 4 percent forever. Floatation costs will be 4 percent of market price. What is Exims cost of equity for the new issue?

SAMREF is issuing a $1,000 par value bond that pays 7 percent annual interest and matures in 10 years. Investors are willing to pay $1,200 for the bond. Floatation costs will be 4 percent of market value. The Company is in a 25 percent tax bracket. What will be the firms after-tax cost of debt on the bond?

The preferred stock of LLC International sells for $40 and pays 5 percent dividends. The net price of the stock is $35. What is the cost of capital for the preferred stock? (2 Marks)

Crawford Enterprises is a publicly held company located in Arnold, Kansas. The firm began as a small tool and die shop but grew over its 35-year life to become a leading supplier of metal fabrication equipment used in the farm tractor industry. At the close of 2020 the firms balance sheet appeared as follows:

Cash	15,000
Accounts Receivable	75,000
Inventories	200,000	Long-term Liabilities	1,790,000
Net Property, Plant, Equipment	3,000,000	Common Equity	1,500,000
Total Assets	3,290,000	Total Debt and Equity	3,290,000

At present, the firms common stock is selling for a price equal to its book value, and the firms bonds are selling at par. Crawfords managers estimate that the market requires a 12 percent return on its common stock, the firms bonds command a yield to maturity of 7 percent, and the firm faces a tax rate of 30 percent. What is Crawfords weighted average cost of capital?

Differentiate between permanent and temporary assets. Which of them is usually used in working capital?

1. 1. A popular theory for managing risk to the firm that arises out of its management of working capital (that is, current assets and current liabilities) involves following the principle of self-liquidating debt. How would this principle be applied in each of the following situations? Explain your responses to each alternative. (6 Marks)
   1. Longleaf Homes owns a chain of senior housing complexes in the Seattle, Washington, area. The firm is presently debating whether it should borrow short or long term to raise $10 million in needed funds. The funds are to be used to expand the firms care facilities, which are expected to last 20 years.
   2. Arrow Chemicals needs $5 million to purchase inventory to support its growing sales volume. Arrow does not expect the need for additional inventory to diminish in the future.

Blocker Building Materials, Inc. is reviewing its plans for the coming year and expects that during the months of November through January it will need an additional $5 million to finance the seasonal expansion in inventories and receivables