An investment of $100 generates after-tax cash flows of $40 in Year 1, $100 in year 2, and $170 in Year 3. The required return is 15%. Calculate the net present value .

2. An investment of $170,000 is expected to generate an after-tax cash flow of $100,000 in one year and another $130,000 in two years. The cost of capital is 7%. What is the internal rate of return?

A financial analyst at Lenny Ltd. Wants to compute the company’s weighted average cost of capital (WACC) using the dividend discount model. The analyst has gathered the following data:
Before-tax of new debt 7%

Tax rate 35% Target debt-to equity ratio 0.7033 Stock price $33 Next-years dividend $1.70 Estimated growth rate 5%

What is the after- tax cost of debt?

What is the cost of equity?

What is the weight of debt?

What is the weight of equity?

What is the WACC?

3. An investment of $17,000 will create a a perpetual after-tax cash flow of $4,000. The required rate of return is 7%. What is the investment’s profitability index?

4. ABC is investing $250,000 of fixed capital in a project that will be depreciated straight- line to zero over its 10-year life. Annual Sales are expected to be $760,000 and annual operating expenses are expected to be $420,000. An investment of $50,000 in net working capital is required over the project’s life. The corporate income tax rate is 35%. What is the after-tax operating cash flow expected in year one?

5. Junk.Com has determined that it could issue $1,000 face value bonds with an 7% coupon paid semiannually and a five-year maturity at $940 per bond. If Junk.Com’s marginal tax rate is 35%, its after-tax cost of debt is closest to: