Capital Budgeting & Capital Structure

A project has an initial cost of $45,000. The incremental inflows associated with the project are $20,000 in year 1, $15,000 in year 2, $10,000 in year 3 and $8,000 in year 4. All cash inflows are at the end of the year. The appropriate discount rate for this project is 8.0%. (HINT: Possibly use Excel Worksheet)

1. What is the project’s payback period?
   a. 5.00 Years
   b. 3.00 Years
   c. 8.00 Years
   d. 7.00 Years
2. What is the project’s discounted payback period?
   a. 2.87 Years
   b. 3.97 Years
   c. 10.25 Years
   d. 6.75 Years
3. What is the project’s net present value?
   a. $197.16
   b. $278.96
   c. $345.21
   d. $225.35
4. What is the project’s internal rate of return? Calculate to two decimal places.
   a. 3.52%
   b. 8.23%
   c. 5.35%
   d. 2.75%
5. What is the project’s modified internal rate of return? Calculate to two decimal places.
   a. 3.52%
   b. 7.60%
   c. 5.35%
   d. 8.12%
   A project has an initial cost of $45,000. The incremental inflows associated with the project are $20,000 in year 1, $15,000 in year 2, $10,000 in year 3 and $8,000 in year 4. All cash inflows are at the end of the year. The appropriate discount rate for this project is 8.0%. The component costs of capital and their weights are given below:
6. What is the project’s weighted-average cost of capital?
   kd = 10% wd = 45%
   kp = 5% wp = 10%
   ke = 8% we = 45%
   T = 40%
   a. 6.8%
   b. 2.4%
   c. 4.3%
   d. 8.5%