Katckadj & Co. is considering Projects A and B, whose cash flows are shown below. What is the crossover point - the WACC at which we are indifferent between the two projects.

WACC: 10.00% Year 0 1 2 3 4 CFS -$1,125 $800 $550 $350 $ 150 CFL -$1,100 $200 $400 $600 $800

9.12%

9.90%

10.41%

11.64%

12.42%

Question 20

A company (financed only by debt and common stock) changes its capital structure from 20% Debt to Assets to 80% Debt to Assets. Which of the following scenarios is most likely?

Cost of Debt Increases, Cost of Equity Decreases, and WACC Decreases.

Cost of Debt Increases, Cost of Equity Decreases, and WACC Increases.

Cost of Debt Decreases, Cost of Equity Increases, and WACC Decreases.

Cost of Debt Decreases, Cost of Equity Decreases, and WACC Decreases.

Cost of Debt Increases, Cost of Equity Increases, and WACC Decreases.

Question 22

Overlord is considering a new project that has the data below. What is the project's Year 1 cash flow?

Sales revenues, each year

$62,500

Depreciation

$ 15,000

Other operating costs

$25,000

Interest expense

$ 8,000

Tax rate

38.0%

$25,952

$27,175

$28,950

$29,960

$30,675

Question

Anderson Pipe is considering a new project whose data are shown below. The required equipment has a 3-year tax life, and the accelerated rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected operating life. What is the project's Year 3 cash flow?

Equipment cost (depreciable basis)

$70,000

Sales revenues, each year

$42,500

Operating costs (excl. deprec.)

$25,000

Tax rate

35.0%

$11,814

$12,436

$13,090

$15,050

$16,432

Question 24

Able Baker & Company is considering the purchase of a new machine for $50,000. The machine has a tax life of 5 years, and it can be depreciated according to the following rates. The firm expects to operate the machine for 5 years and then to sell it for $12,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 5?

Depreciation

Year

Rate

1

0.20

2

0.32

3

0.19

4

0.12

5

0.11

6

0.06

$8,700

$9,350

$9,800

$10,350

$10,900