Please answer ALL of the following questions and show work. (Stocks, Cost of Capita & Capital Budgeting)

10. The Seattle Corporation has been presented with an investment opportunity that will yield cash flows of $30,000 per year in

Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000

today, and the firms cost of capital is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day. What is

the payback period for this investment?

a. 5.23 years

b. 4.86 years

c. 4.00 years

d. 6.12 years

11. Coughlin Motors is considering a project with the following expected cash flows:

Project

Year Cash Flow

0 -$700 million

1 200 million

2 370 million

3 225 million

4 700 million

The projects WACC is 10 percent. What is the projects discounted payback?

a. 3.15 years

b. 4.09 years

c. 1.62 years

d. 3.09 years

12. Your company is choosing between the following non-repeatable, equally risky, mutually exclusive projects with the cash

flows shown below. Your cost of capital is 10 percent. How much value will your firm sacrifice if it selects the project with the

higher IRR?

k = 10%

Project S: 0 1 2 3

| | | |

-1,000 500 500 500

k = 10%

Project L: 0 1 2 3 4 5

| | | | | |

-2,000 668.76 668.76 668.76 668.76 668.76

a. $243.43

b. $291.70

c. $332.50

d. $481.15