Assignment Four

Solve the problems below. Be sure to show your work. Ten points each.

1) If Taylor Swift is evaluating a project with the given cash flow and weighted average

cost of capital (WACC) information, what is the project's net present value (NPV)? It's important to note that if the project's projected NPV is negative, it should not be pursued.

WACC: 10.25%

Year 0 1 2 3 4 5 Cash flows -$1,000 $300 $300 $300 $300 $300

2) D&D is analyzing a project with the provided cash flow information. Can you calculate the project's internal rate of return (IRR)? Keep in mind that the IRR of a

project can be lower than the weighted average cost of capital (WACC) or even negative, in which case the project should be rejected.

Year 0 1 2 3

Cash flows -$1,000 $425 $425 $425

3) If Tesla Inc. is evaluating a project with the given cash flow information, can you

determine the payback period of the project?

Year 0 1 2 3

Cash flows -$750 $300 $325 $350

4) First Capital recently evaluated a project and calculated its cash flows, which are presented below. However, after the analysis, the Federal Reserve made changes to

the interest rates that affected the company's weighted average cost of capital (WACC), before the final decision to accept or reject the project was made. Its important to note that the Federal Reserve's actions didn't impact the projected cash flows of the project. What is the impact of the WACC change on the projects estimated net present value (NPV)? Keep in mind that if the project's projected NPV is negative, it should be rejected.

Old WACC: 10.00% New WACC: 11.25%

Year 0 1 2 3

Cash flows -$1,000 $410 $410 $410

5) Brady Brand is evaluating a project with the given cash flow and weighted average cost of capital (WACC) information. Can you determine the project's modified internal rate of return (MIRR)? Keep in mind that the MIRR can be lower than the WACC, or even negative, indicating that the project is not viable and should be rejected.

WACC: 10.00%

Year 0 1 2 3 4 Cash flows -$850 $300 $320 $340 $360

6) If Microsoft's common stock is currently trading at $52.50 per share, and the company is expected to pay a dividend of $2.50 at the end of the year (D1 = $2.50)

with a growth rate of 5.50% per year, what is the company's weighted average cost of capital (WACC) if it only uses retained earnings for its equity financing? Assuming the target capital structure of the company is 45% debt and 55% common equity, and the before-tax cost of debt is 7.50% with a tax rate of 40%, we can calculate the WACC using the cost of debt and cost of equity.

7) As a consultant for Zip103, a company with a target capital structure of 40% debt, 15% preferred stock, and 45% common equity, you need to determine the company's

weighted average cost of capital (WACC). Assuming the after-tax cost of debt is 6.00%, the cost of preferred stock is 7.50%, and the cost of retained earnings is 12.75%, and the company is not planning to issue any new shares, what is the WACC for Zip103?

8) Assuming Amazon Inc. has just paid a dividend of $0.75 per share (D0), and its dividend is expected to increase at a constant rate of 6.50% per year. What is the current stock price of the company, given that the company has a beta of 1.25, the

market's required return is 10.50%, and the risk-free rate is 4.50%, we can use the dividend discount model to estimate the stock price.