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There are several questions. I need the problem explained please not just the answer. Thank you.

1. Find the IRR of a project that returns $17000 three years from now if it costs $12000.

2. AQ&Q has EBIT of $2 million total assets of $10 million stockholders%u2019 equity of $4 million and pretax interest

expense of 10 percent.

What is the AQ&Q indifference level of EBIT?

Given its current situation might it benefit from increasing or decreasing its use of debt? Explain

Suppose we are told AQ&Q%u2019s average tax rate is 40 percent. How does this affect your answers to (a) and (b)?

3. Faulkner%u2019s Fine Fries Inc. (FFF) is thinking about reducing its debt burden. Given the following capital structure

information and an expected EBIT of $50 million (plus or minus 10 percent) next year should FFF change their capital structure?

CURRENT

PROPOSED

Total assets

$750 million

$750 million

Debt

450 million

300 million

Equity

300 million

450 million

Common stock price

$30

$30

Number of shares

10000000

15000000

Interest rate

12%

12%

4. The Nutrex Corporation wants to calculate its weighted average cost of capital. Its target capital structure weights are 40 percent

long-term debt and 60 percent common equity. The before-tax cost of debt is estimated to be 10 percent and the company is in the 40 percent tax bracket. The

current risk-free interest rate is 8 percent on Treasury bills. The expected return on the market is 13 percent and the firm%u2019s stock beta is 1.8.

What is Nutrex%u2019s cost of debt?

Estimate Nutrex%u2019s expected return on common equity using the security market line.

Calculate the after-tax weighted average cost of capital.

5. Pretty Lady Cosmetic Products has an average production process time of forty days. Finished goods are kept on hand for an

average of fifteen days before they are sold. Accounts receivable are outstanding an average of thirty-five days and the first receives forty days of credit

on its purchases from suppliers.

Estimate the average length of the firm%u2019s short term operating cycle. How often would the cycle turn over in a year?

Assume net sales of $1200000 and cost of goods sold of $900000. Determine the average investment in accounts receivable inventories and

accounts payable. What would be the net financing need considering only these three accounts?

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