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# Kendall, Inc. has \$15 million of outstanding bonds with a coupon

### Resolved Question:

Kendall, Inc. has \$15 million of outstanding bonds with a coupon rate of 10 percent. The yield to maturity on these bonds is 12.5 percent. If the firm's tax rate is 30 percent, what is relevant cost of debt financing to Kendall, Inc.? Answer A) 13.75% B) 8.75% C)7% D)3.75%

Durocorp has a target capital structure of 30% debt and 70% equity. Durocorp is planning to invest in a project that will necessitate raising new capital. New debt will be issued at a before-tax yield of 14%, with a coupon rate of 10%. The equity will be provided by internally generated funds so no new outside equity will be issued. If the required rate of return on the firm's stock is 22% and its marginal tax rate is 35%, compute the firm's cost of capital. Answer A)18% B) 18.13% C)19.68% D) 15.55%

A machine that costs \$1,500,000 has a 3-year life. It will generate after tax annual cash flows of \$700,000 at the end of each year. It will be salvaged for \$200,000 at the end of year 3. If your required rate of return for the project is 13%, what is the NPV of this investment? Answer A) 291,417 B)400,000 C)600,000 D)338,395

Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs \$95,000 and 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 modified internal rate of return for Project B is: Answer: A) 17.84% B)18.52% C)19.75% D)22.80%

What is the payback period for a project with an initial investment of \$180,000 that provides an annual cash inflow of \$40,000 for the first three years and \$25,000 per year for years four and five, and \$50,000 per year for years six through eight? Answer: A)5.8 years B)5.2 years C)5.40 years D)5.59

Your firm is considering an investment that will cost \$750,000 today. The investment will produce cash flows of \$250,000 in year 1, \$300,000 in years 2 through 4, and \$100,000 in year 5. What is the investment's discounted payback period if the required rate of return is 10%? Answer: A)3.33 years B)3.16 years C)2.67 years D)2.33 years

A new machine can be purchased for \$1,200,000. It will cost \$35,000 to ship and \$15,000 to modify the machine. A \$12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for \$180,000. The firm will borrow \$750,000 to finance the acquisition. Total interest expense for 5-years is expected to approximate \$350,000. What is the investment cost of the machine for capital budgeting purposes? Answer: A)2,180,000 B)1,780,000 C)1,442,000 D)1,430,000

Creighton Industries is considering the purchase of a new strapping machine, which will cost \$150,000, plus an additional \$10,500 to ship and install. The new machine will have a 5-year useful life and will be depreciated to zero using the straight-line method. The machine is expected to generate new sales of \$45,000 per year and is expected to save \$16,000 in labor and electrical expenses over the next 5-years. The machine is expected to have a salvage value of \$20,000. Creighton's income tax rate is 35%. Creighton uses a 12.5% discount rate for capital budgeting purposes. What is the machine's NPV? Answer: A)29,888 B)25,062 C)22,153 D)27,894
Submitted: 5 years ago.
Category: Homework
Expert:  Linda_us replied 5 years ago.

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Linda_us, Finance, Accounts & Homework Tutor
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Experience: Post Graduate Diploma in Management (MBA)

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