ement of its old printing machine with a new 10. The Target Copy Company is contemplating the replacement of its old printingc ected life model costing $60,000. The old machine which originally cost $10.000, has 6 yeano remaining and a current book value of $30.000 versus a current market value initial after-tax corporate tax rate is 4096 If Target sells the old machine at market value, what is outlay for the new printing machine? a. -$22,180 b -$30.000 .533.600 d-$36.000 e. -$40,000 current market value of $24,000. Target's 11. A com company estimates that an average-risk noiect has a WACC of 10%, a below-average risk project has a WACC of 8%, and an above average risk occt has a WACC of 129. Which of the following independent projects should the company accept? a. Project A has average risk and an IRR 996 b. Project B has below-average risk and an IRR-8.596. e. Project C has above average risk and an IRR-1196 d. All of the projects above should be accepted. e. None of the projects above should be accepted. 12. Arizona Rock, an all-equity firm currently has a heta of 1.25. and key = 7% and KM-14%. Suppose the firm sells 10% of its assets (het = 1.25) and purchases the same proportion of new assets with a beta of 1.l. What will be the firm's new overall required rate of retum, and what rate of return must the new assets produce in order to leave the stock price unchanged? a. 15.64596; 15.645% b. 15.750%; 14.700% c. 15.645%; 14.700% d. 15.750%; 15.645% e. 14.750%; 15.75096 13. In order to comply with new environmental regulations, Dixon Disposal needs to build a new waste treatment facility. Dixon is considering two mutually exclusive plans to comply with the regulations: Plan W and Plan C. Plan W requires more workers, but less capital. Plan C requires more capital but fewer workers. The plans produce no additional revenue; the company is simply looking for the plan which has the lowest cost (as measured in terms of present value). The plans have the following costs: Year Plan W Cash Flow -$900,000 -900,000 -900.000 -900.000 Plan C Cash Flow -S1,800,000 -540,000 -540,000 -540,000 Plan C is of average risk and has a WACC of 10%. Plan W has above-average risk and the company has assigned the project a 2% risk adjustment, i.e., the project's WACC will be adjusted by 2% considering its greater risk. Which project will be selected, and what is the present value cost of the plan that is selected? a. Plan W. PV = -$3,061,648 b. Plan W. PV = $2,967,777 c. Plan C, PV =-$3,142,900 d. Plan C, PV = $3,096,989 e. Plan W, PV = -$3,138,167 14. Dandy Product's overall weighted average required rate of return is 10%. Its yogurt division is riskier than average, its fresh produce division has average risk, and it institutional foods division has below-average risk. Dandy adjusts for both divisional and project risk by adding or subtracting 2%. Thus, the maximum adjustment is 4%. What is the risk-adjusted required rate of return for a low-risk project in the yogurt division? a. 6% b.8% c. 10% d. 12% e. 14%
