Question
PLEASE GIVE EXPLANATION Using the WACC in practice: Poly's Parrot Shops has found that its cost of common equity capital is 17 percent. It has
PLEASE GIVE EXPLANATION
Using the WACC in practice: Poly's Parrot Shops has found that its cost of common equity capital is 17 percent. It has 7-year maturity bonds outstanding with a price of $767.03 that have a coupon rate of 7 percent. Ifthe firm is financed with $120,000,000 of common shares (market value) and $80,000,000 of debt, then what is the after-tax weighted average cost of capital for Poly's if it is subject to a 35 percent marginal tax rate?
A) 10.20%
B)11.76%
C)11.88%
D)13.32%
Internal rate of return: Lowell Communications, Inc., has been installing a fiber-optic network at a cost of $18 million. The firm expects annual cash flows of $3.7 million over the next 10 years. What is this project's internal rate of return? (Round to the nearest percent.)
A)10%
B)12%
C)14%
D)16%
Payback: Creighton, Inc., has invested $2,165,800 on equipment. The firm uses payback period criteria of not accepting any project that takes more than four years to recover costs. The company anticipates cash flows of $424,386, $512,178, $561,755, $764,997, $816,500, and $825,375 over the next six years. What is the payback period, and does this investment meet the firm's payback criteria?
A) 4.13 years; no
B)4.13 years; yes
C)3.87 years; yes
D)3.87 years; no
Net present value: The Cyclone Golf Resorts is redoing its golf course at a cost of $2,744,320. It expects to generate cash flows of $1, 223,445, $2,007,812, and $3,147,890 over the next three years. If the appropriate discount rate for the firm is 13 percent, what is the NPV of this project?
A) $7,581,072
B) $2,092,432
C) $4,836,752
D) $3,112,459
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