Question1. Capital Co. has a capital structure, which is based on current market values, that comprises 39 percent debt, 45 percent common stock, and 16 percent preferred stock. If the returns needed by investors are 11 percent, 11 percent, and 16 percent for debt, preferred stock, and common stock, respectively, what is Capital’s after-tax WACC? Suppose that the firm’s marginal tax rate is 40 percent.
Question2. Briarcrest Condiments is a spice-making firm. Recently, it developed a new procedure for producing spices. The process needs new machinery that would cost $1,728,890. Have a life of five years, and would produce the cash flows shown given below.
Year Cash Flow
1 $497,736
2 -273,646
3 843,393
4 850,937
5 727,679
Question3. What is the NPV when the discount rate is 12.62 percent?