Assignment #1:
FINA 2360.2A/2D
DUE JAN 24, 2024, 11:59 PM
Q1: WXB Inc., whose cost of capital is 6%, has $875 MM in long-term debt and $1.95 billion in SH’s Eq.
WXB Inc.’s tax rate is 30% and bondholders were issued $45 MM in coupons. Assuming WXB Inc.’s net
income totals $145.6 MM, what is the EVA value for WXB Inc. – and what is the relationship of the
cost of capital and EVA?
-Q2: IMB Inc. undertakes a $50 MM project with $20 MM in cash from reserves and borrows $30 MM;
the project yields a net profit of $10MM – what are the rates of return (unlevered and levered)? If the
net profit turns out to be - $10MM, what do you notice about leverage?
-Q3: You currently have $3,800 saved for a trip to Easter Island, but you require $10,000- if you are
able to generate a 10% ROR, how long will it take (ignoring inflation)? Verify your answer.
-Q4: Investor O deposits $21,200, which will earn 4.65% for 8 years, and 6.15% for the next 17 years.
Investor P deposits $23,700, which will earn 5.05% for 8 years, and 5.85% for the next 17 years. Which
investor has more after the 25-YR period?
-Q5: Two investors, J and K, deposit $15,000 at the exact same time for 35 years; investor J is riskaverse, while investor K is risk-tolerant. Two investment options are available: conservative and
growth, which have return forecasts of 6% and 12%, respectively. Will investor K have twice as much
as J in 35 years – what might you say about the relationship between growth and FV(s)?