Question

1. Project K costs $52,125 at time 0, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 12%. What is the project's IRR? A. 15% B. 16% C. 17% D. 18%

2. Patton Corporation has a target capital structure of 60% debt and 40% common equity, with no preferred stock. Its before-tax cost of debt is 12%, and its tax rate is 40%. The stock price is $22.50. The last dividend was $2.00, and it is expected to grow at a 7% constant rate. What’s its WACC? A. 8.62% B. 9.42% C. 10.92% D. 11.72%

3. A firm considers a project with the following cash flows. What’s its MIRR if WACC=12%? A. 13.10% B. 12.68% C. 11.32% D. 10.72%   

Answer 1

Cash flows	Year
(52,125.00)	0
12,000.000	1
12,000.000	2
12,000.000	3
12,000.000	4
12,000.000	5
12,000.000	6
12,000.000	7
12,000.000	8

Use IRR function in Excel

1. IRR = 16%

2. cost of equity = 2*1.07/22.50 + 7% = 16.51%

WACC = 0.60*12%*0.6 + 0.4*16.51% = 10.92%

3. Please provide the cash flows