1. Verano Inc. has two business divisions - a software product line and a waste water clean-up product line. The software business has a cost of equity capital of 11% and the waste water clean-up business has a cost of equity capital of 6%.
Verano has 50% of its revenue from software and the rest from the waste water business. Verano is considering a purchase of another company in the waste water business using equity financing.
What is the appropriate cost of capital to evaluate the business?
2. Ford Motors expects a new hybrid-engine project to produce incremental cash flows of $91 million each year and expects these to grow at a rate of 0.06 each year. The upfront project costs are $815 million and Ford's weighted average cost of capital is 0.09.
If the issuance costs for external finances are $5 million, what is the net present value (NPV) of the project? Round to nearest whole number.
Give answer in millions without commas or dollar signs. Do not include the words millions. For example, write '$34 million' as 34
3. Which of the following is NOT a step in the WACC valuation method?
Determine the incremental free cash flows of the investment.
Determine the mean weighted average cost of capital for the firm's industry.
Discount the incremental free cash flows of the investment using the weighted average cost of capital.
Compute the weighted average cost of capital.