1) Anderson Systems is considering a project that has the following cash flow and WACC data.
(a) What is the project’s NPV? Note that if a project’s expected NPV is negative, it should be rejected.
WACC: 9.00%
Year 0 1 2 3
Cash flows -$1,000 $500 $500 $500
(b) What is the project’s IRR?
(c) What is the project’s Payback Period?
(d) What is the project’s Discounted Payback Period?
2) Tuttle Enterprises is considering a project that has the following cash flow and WACC data.
(a) What is the project’s NPV? Note that if a project’s expected NPV is negative, it should be rejected.
WACC: 11.00%
Year 0 1 2 3 4
Cash flows -$1,000 $350 $350 $350 $350
(b) What is the project’s IRR?
(c) What is the project’s Payback Period?
(d) What is the project’s Discounted Payback Period?
3) XYZ Inc. has the following data: rRF = 4.00%; RPM = 5.50%; and b = 0.95. What is the firm’s cost of common equity?
4) ABC Co.’s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. Now the company were to sell a new preferred issue, with a flotation cost of 5.00% of the price paid by investors. What is the company’s cost of preferred stock for use in calculating the WACC?
