Cooper Electronics uses NPV profiles to visually evaluate competing projects. Key data for the two projects under consideration are provided in the accompanying table. Using these data, graph, on the same set of axes, the NPV profiles for each project using discount rates of $0 \%, 8 \%$, and the IRR.

	Terra	Firma
Initial investment	$\$ 30,000$	$\$ 25,000$
Year	Operating cash inflows
1	$\$ 7,000$	$\$ 6,000$
2	10,000	9,000
3	12,000	9,000
4	10,000	8,000

Axis Corp. is considering investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $45,000 and generate cash inflows of$20,000 per year for the next 3 years. Project Thompson involves replacement of the existing system; it will cost $275,000 and generate cash inflows of$60,000 per year for 6 years. Using an 8% cost of capital, calculate each project's NPV, and make a recommendation based on your findings.

Axis Corp. is considering investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $\$ 45,000$ and generate cash inflows of $\$ 20,000$ per year for the next $3$ years. Project Thompson involves replacement of the existing system; it will cost $\$ 275,000$ and generate cash inflows of $\$ 60,000$ per year for $6$ years. Using an $8 \%$ cost of capital,determine each project's NPV, and make a recommendation based on your findings.

Herky Foods is considering acquisition of a new wrapping machine. The initial investment is estimated at $1.25 million, and the machine will have a 5-year life with no salvage value. Using a 6% discount rate, determine the net present value (NPV) of the machine given its expected operating cash inflows shown in the following table. Based on the project’s NPV, should Herky make this investment?

Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $25,000; project Helium requires an initial outlay of$35,000. Using the expected cash inflows given for each project in the following table, calculate each project's payback period. Which project meets Elysian's standards?

Calculate the net present value (NPV) for the following $20$ year projects. Comment on the acceptability of each. Suppose that the firm has an opportunity cost of $14 \%$. a. Initial investment is $\$ 10,000$; cash inflows are $\$ 2,000$ per year.

Oxy Corporation uses debt, preferred stock, and common stock to raise capital. The firm's capital structure targets the following proportions: debt, $55 \%$; preferred stock, $10 \%$; and common stock, $35 \%$. If the cost of debt is $6.7 \%$, preferred stock costs $9.2 \%$, and common stock costs $10.6 \%$, Determine Oxy's weighted average cost of capital (WACC).

Weekend Warriors, Inc., has $35 \%$ debt and $65 \%$ equity in its capital structure. The firm's estimated after-tax cost of debt is $8 \%$ and its estimated cost of equity is $13 \%$. Find the firm's weighted average cost of capital (WACC).

Duke Energy has been paying dividends steadily for 20 years. During that time, dividends have grown at a compound annual rate of 7%. If Duke Energy’s current stock price is $78 and the firm plans to pay a dividend of$6.50 next year, what is Duke’s cost of common stock equity?

People's Consulting Group, has been asked to consult on a potential preferred stock offering by Brave New World. This $15 \%$ preferred stock issue would be sold at its par value of $\$ 35$ per share. Flotation costs would total $\$ 3$ per share. Evaluate the cost of this preferred stock.

Your firm, People’s Consulting Group, has been asked to consult on a potential preferred stock offering by Brave New World. This 15% preferred stock issue would be sold at its par value of $35 per share. Flotation costs would total$3 per share. Calculate the cost of this preferred stock.

A firm raises capital by selling $\$ 20,000$ worth of debt with flotation costs equal to $2 \%$ of its par value. If the debt matures in $10$ years and has a coupon interest rate of $8 \%$, calculate the bond's YTM.

Project A offers Bill Williams the chance to invest $9,000 now with annual end-of-year rewards of$2,200, $2,500,$2,000, and $1,800 over the following five years. Alternatively, Bill can put$9,000 into project B, which promises to make end-of-year payouts of $1,500,$1,500, $3,500, and$4,000 over the course of the following five years. Do you see any problems with his choice?

Describe the acceptance criteria for NPV? How are they related to the firm's market value?