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Accounting Solutions

# Accounting Solutions

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11/06/2013

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Given the following annual net cash flows, determine the internal rate of return to the nearestwhole percent of a project with an initial outlay of \$750,000.YEAR NET CASH FLOW1 \$500,0002 \$150,0003 \$250,000(Points : 1)9%
11%
13%15%2. Higgins Office Corp. plans to maintain its optimal capital structure of 40 percent debt, 10 percent preferred stock, and 50 percent common equity indefinitely. The required return on eachcomponent source of capital is as follows: debt--8 percent; preferred stock--12 percent; commonequity--16 percent. Assuming a 40 percent marginal tax rate, what after-tax rate of return mustHiggins Office Corp. earn on its investments if the value of the firm is to remain unchanged?(Points : 1)12.40 percent12.00 percent
11.12 percent
10.64 percent3. Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs \$95,000and is expected to generate \$65,000 in year one and \$75,000 in year two. Project B costs\$120,000 and is expected to generate \$64,000 in year one, \$67,000 in year two, \$56,000 in year three, and \$45,000 in year four. Zellars, Inc.'s required rate of return for these projects is 10%.The profitability index for Project B is (Points : 1)
1.55
1.48.

1.39.1.33.4. Five Rivers Casino is undergoing a major expansion. The expansion will be financed byissuing new 15-year, \$1,000 par, 9% annual coupon bonds. The market price of the bonds is\$1,070 each. Gamblers flotation expense on the new bonds will be \$50 per bond. Gamblersmarginal tax rate is 35%. What is the pre-tax cost of debt for the newly-issued bonds? (Points :1)
8.76%
8.12%7.49%10.25%5. Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs \$95,000and is expected to generate \$65,000 in year one and \$75,000 in year two. Project B costs\$120,000 and is expected to generate \$64,000 in year one, \$67,000 in year two, \$56,000 in year three, and \$45,000 in year four. Zellars, Inc.'s required rate of return for these projects is 10%.The net present value for Project A is (Points : 1)\$12,358.\$16,947.\$19,458.
\$26,074.
6. Project XYZ requires an investment in equipment of \$600,000 to replace existing equipment.The existing equipment will produce after-tax salvage value of \$70,000. Net working capitalrequirements are increased by \$50,000. What is the total cash outflow at time zero? (Points : 1)\$720,000\$650,000\$530,000
\$580,000
7. Clothier, Inc. has a target capital structure of 40% debt and 60% common equity, and has a40% marginal tax rate. If Clothier's yield to maturity on bonds is 7.5% and investors require a

15% return on Clothier's common stock, what is the firm's weighted average cost of capital?(Points : 1)7.20%
10.80%
12.00%12.25%8. Nickel Industries is considering the purchase of a new machine that will cost \$178,000, plusan additional \$12,000 to ship and install. The new machine will have a 5-year useful life and will be depreciated using the straight-line method. The machine is expected to generate new sales of \$85,000 per year and is expected to increase operating costs by \$10,000 annually. Nickel'sincome tax rate is 40%. What is the projected incremental cash flow of the machine for year 1?(Points : 1)\$54,800\$60,200\$66,350\$68,2009. PDF Corp. needs to replace an old lathe with a new, more efficient model. The old lathe was purchased for \$50,000 nine years ago and has a current book value of \$5,000. (The old machineis being depreciated on a straight-line basis over a ten-year useful life.) The new lathe costs\$100,000. It will cost the company \$10,000 to get the new lathe to the factory and get it installed.The old machine will be sold as scrap metal for \$2,000. The new machine is also beingdepreciated on a straight-line basis over ten years. Sales are expected to increase by \$8,000 per year while operating expenses are expected to decrease by \$12,000 per year. PDF's marginal taxrate is 40%. Additional working capital of \$3,000 is required to maintain the new machine andhigher sales level. The new lathe is expected to be sold for \$5,000 at the end of the project's ten-year life. What is the project's terminal cash flow? (Points : 1)\$3,000\$5,000
\$6,000
\$8,000

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