Short Problems: 1. An investment opportunity costing $150,000 is expected to yield net cash flows of $45,000 annually for five years. The cost of capital is 10%. The payback period is?

2. An investment opportunity costing $150,000 is expected to yield net cash flows of $36,000 annually for six years. The discounted payback period of the investment at a cutoff rate of 12% would be? Round off all PV factors to three decimal places.

3. An investment opportunity costing $100,000 is expected to yield net cash flows of $22,000 annually for seven years. The average accounting rate of return of the investment is?

4. An investment opportunity costing $300,000 is expected to yield net cash flows of $100,000 annually for five years. The net present value of the investment at a cutoff rate of 14% (use PV factor 3.433) would be?

5. An investment opportunity with 8 years useful life costing $100,000 is expected to yield net cash flows of $30,000 annually. Without using PV factor, estimate the IRR.

6. Gadon Company purchased a new machine for P 90, 000, with an estimated useful life of 5 years and a salvage value of P 10, 000. The machine will be depreciated using the straight-line method. The machine is expected to produce cash flow from operations, net of tax, of P 35, 000 a year in each of the next 5 years. The new machines salvage value is P 15, 000 in years 1 and 2 and P 10, 000 in years 3 and 4. What will be the bailout for this machine?

7. Ape Corporation currently pays a P2.20 annual cash dividend with 5% growth rate. If the required rate of return is 12%, what is the price of the common stock?

8. Boy Corporation currently pays P2.00 annual cash dividend to preferred shares with P10.00 par value. If the required rate of return is 16%, what is the price of the preference stock?

9 Find the required rate of return for an asset with a beta of 1.10 when the risk-free rate and market return are 6% and 11%, respectively.

10. Cat Company has 5% preferred stock with a par value of P 100.00. Selling price is P 123.50 per share and flotation costs are P 0.50 per share. The companys tax rate is 20%. What is the cost of preferred stock?

Long Problems: 1. BRB Co. has the opportunity to introduce a new product. BRB expects the product to sell for P60 and to have per-unit variable costs of P30 and annual fixed costs including depreciation is P3,000,000. Expected annual sales volume is 120,000 units. The equipment needed to bring out the new product costs P5,000,000, has a four-year life and no salvage value, and would be depreciated on a straight-line basis. BRB's cost of capital is 10% (use 3.170 for PV factors). Its income tax rate is 35%.

Compute for the:

A. Annual after-tax cash flows for this opportunity.

B. Payback period. (2 decimal places)

C. Book rate of return based on original investment

D. NPV for this project.

E. Profitability index

2. Cyclops has an investment opportunity with a cost of capital equal to 8% costing $300,000 that is expected to yield the following after tax cash flows over the next six years: (Round PV factors to three decimal places in all cases) Year One $100,000 Year Two $90,000 Year Three $80,000 Year Four $70,000 Year Five $60,000 Year Six $50,000

A. Find the payback period on this project.

B. Find the discounted payback period of this project.

C. Find the NPV for this project.

3. EEL Company common stock is selling at P62.50/share while flotation cost of P5/share. The current dividend per share is P5.42/share. Growth rate projected at 5%. Compute for the:

A. cost of common stock and

B. retained earnings.