Calculate the traditional payback period, IRR, NPV, and PVI for the project

Calculate the traditional payback period, IRR, NPV, and PVI (present value index) for the project with the following cash flows. The opportunity cost of capital for the project is 14%. (8 points)

Year       Cash   Flows
0          1,500,000
1           400,000
2           600,000
3           550,000
4           450,000
5           200,000

Payback = 2.91 Years

IRR = 15.60%

NPV = $54,101.90

PVI = 1.04

 

What is Plato’s Inc.’s weighted average cost of capital (WACC) given the following information? Dollar amounts are in millions. There are two debt components and YTM (yield to maturity) for these two components are: 4% for notes due in May 2015, and 6% for notes due in January 2020. The risk-free rate is 3%, and market risk premium is 8%. The company has a beta of 1.5. The firm’s tax rate is 35%. (7 points)
Book Value  Market Value
Notes due 2015  15  17
Notes due 2020  12  16
Equity  54  74
Total  81  107
WACC = 11.37%

Solution: