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Project Finance Cash Flow

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					Deadline 11/19/10 11:00 am EST will pay bonus. 1. Ingram Electric Products is
considering a project that has the following cash flow and WACC data. What is the
project's MIRR? Note that a project's projected MIRR can be less than the WACC (and
even negative), in which case it will be rejected. WACC: 14.75% Year 0 1 2 3 Cash
flows -$800 $350 $350 $350
14.87% --------------------------------------------------------------------------------

2. Ehrmann Data Systems is considering a project that has the following cash flow and
WACC data. What is the project's MIRR? Note that a project's projected MIRR can be
less than the WACC (and even negative), in which case it will be rejected. WACC:
10.75% Year 0 1 2 3 Cash flows -$1,000 $450 $450 $450
14.48%

3. Fernando Designs is considering a project that has the following cash flow and WACC
data. What is the project's discounted payback? WACC: 10.00% Year 0 1 2 3 Cash flows
-$700 $500 $500 $500
 1.59 years
-------------------------------------------------------------------------------- 4. Lasik Vision Inc.
recently analyzed the project whose cash flows are shown below. However, before Lasik
decided to accept or reject the project, the Federal Reserve took actions that changed
interest rates and therefore the firm's WACC. The Fed's action did not affect the
forecasted cash flows. By how much did the change in the WACC affect the project's
forecasted NPV? Note that a project's projected NPV can be negative, in which case it
should be rejected. Old WACC: 8.00% New WACC: 8.75% Year 0 1 2 3 Cash flows -
$1,000 $410 $410 $410
-$14.14
 -------------------------------------------------------------------------------- 5. Several years ago
the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years to
maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells
for $950, and the company’s tax rate is 40%. What is the component cost of debt for use
in the WACC calculation?
 4.49%

-------------------------------------------------------------------------------- 6. You were recently
hired by Scheuer Media Inc. to estimate its cost of capital. You obtained the following
data: D1 = $1.75; P0 = $95.00; g = 7.00% (constant); and F = 5.00%. What is the cost of
equity raised by selling new common stock?
 8.94%

-------------------------------------------------------------------------------- 7. Weaver Chocolate
Co. expects to earn $3.50 per share during the current year, its expected dividend payout
ratio is 65%, its expected constant dividend growth rate is 6.0%, and its common stock
currently sells for $32.50 per share. New stock can be sold to the public at the current
price, but a flotation cost of 5% would be incurred. What would be the cost of equity
from new common stock?
13.37%
---------------------------------------------------------------------------- 8. Lasik Vision Inc.
recently analyzed the project whose cash flows are shown below. However, before Lasik
decided to accept or reject the project, the Federal Reserve took actions that changed
interest rates and therefore the firm's WACC. The Fed's action did not affect the
forecasted cash flows. By how much did the change in the WACC affect the project's
forecasted NPV? Note that a project's projected NPV can be negative, in which case it
should be rejected. Old WACC: 8.00% New WACC: 9.00% Year 0 1 2 3 Cash flows -
$1,000 $410 $410 $410
-$18.78

 -------------------------------------------------------------------------------- 9. Malholtra Inc. is
considering a project that has the following cash flow and WACC data. What is the
project's MIRR? Note that a project's projected MIRR can be less than the WACC (and
even negative), in which case it will be rejected. WACC: 10.00% Year 0 1 2 3 4 Cash
flows -$1,325 $300 $320 $340 $360
3.50%
-------------------------------------------------------------------------------- 10. You were recently
hired by Scheuer Media Inc. to estimate its cost of capital. You obtained the following
data: D1 = $1.75; P0 = $72.50; g = 7.00% (constant); and F = 5.00%. What is the cost of
equity raised by selling new common stock?
9.54%

				
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