1). You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $16,500 to purchase and which will have OCF of $1,700 annually throughout the vehicle's expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $24,000 to purchase and which will have OCF of $900 annually throughout that vehicle's expected 4-year life. Both cars will be worthless at the end of their life. You intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future.

If the business has a cost of capital of 13 percent, calculate the EAC for each car?And which car would you choose?.

WHICH CAR WOLD YOU CHOOSE?

2).Compute the payback statisticfor Project B if the appropriate cost of capital is 11 percent and the maximum allowable payback period is three years.

Project B

Time: 0 1 2 3 4 5

Cash flow: -$12,000 $3,450 $4,380 $1,720 $0 $1,200

PAYBACK______ YEARS?

Should the project be accepted or rejected?

3).FarCryIndustries, a maker of telecommunications equipment, has 3 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. Suppose the common shares are selling for $29 per share, the preferred shares are selling for $15.50 per share, and the bonds are selling for 98 percent of par.

What would be the weight used for equity in the computation of FarCry's WACC?

Weight used=

4).You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $140 initially, and then $115 per year in maintenance costs. Machine B costs $210 initially, has a life of three years, and requires $160 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine.

The discount rate is 12 percent and the tax rate is zero. Calculate the EAC.

EAC for machine A=

EAC for machine B=

5).Compute the PI statistic for Project Zif the appropriate cost of capital is 6 percent.

Project Z

Time: 0 1 2 3 4 5

Cash flow: -$1,200 $390 $520 $690 $340 $140

PI=

Accepted or Rejected?