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%

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