Question

Fin 101

Assignment Questions

Q1: Carrefour is expecting its new center to generate the following cash flows:

Years	0	1	2	3	4	5
Initial Investment	($35,000,000)
Net operating cash-flow		$6,000,000	$8,000,000	$16,000,000	$20,000,000	$30,000,000

a. Determine the payback for this new center. (1 mark)

b. Determine the net present value using a cost of capital of 15 percent.Should the project be accepted? (1 mark)

Answer:

Q2.What is the EAC of two projects: project A, which costs $150 and is expected to last two years, and project B, which costs $190 and is expected to last three years? The cost of capital is 12%. (1 mark)

Answer:

Q3. A company pays annual dividends of $10.40 with no possibility of it changing in the next several years. If the firm’s stock is currently selling at $80, what is the required rate of return? (1 mark)

Answer:

Q4. Stag corp has a capital structure whichisbased on 50% common stock, 20% preferred stock and 30% debt. The cost of common stock is 14%, the cost of preferred stock is8% and the pre-taxcost of debtis10%. The firm'stax rate is40%. (1 mark)

1. Calculate the WACC of the firm.
2. The firmisconsidering a projectthatisequally as risky as the firm'scurrentoperations. This project has initial costs of $280,000 and annual cash inflows of $66,000, $320,000, and $133,000 over the nextthreeyears, respectively. Whatis the net present value of thisproject ?

Answer 1

1]

a]

Payback period is the time taken for the cumulative cash flows to equal zero

Payback period = 3 + (cash flow required in year 4 for cumulative cash flows to equal zero / year 4 cash flow) = 3 + ($5,000,000 / $20,000,000) = 3.25 years

b]

NPV is calculated using NPV function in Excel

NPV is -$286,605

No, the project should not be accepted because the NPV is negative