1. Company is evaluating a 10-year project requiring an initial investment of $50 million. The firm has made the following projections:
EBIT = $10 million
Interest Expense = $2 million
Tax Rate = 40%
Depreciation = $5 million/year
Debt/Equity Ratio = 20%
Cost of Equity = 15%
Total Cost of Capital = 12%
The firm does not intend to change its debt to equity ratio when making additional investments. Using FCFE, what is the expected net present value (NPV) of this project for the equity investors?
A. $9.18 million
B. $12.15 million
C. $16.83 million
D. $21.34 million
2. Corporation wants to determine its current market value weighted-average cost of capital. The market value of the firm's bonds is $1.5 million and the bond yield is 12.00%. Company has 125,000 shares of common stock outstanding and the current market price is $40 per share. The firm's tax rate is 30% and its beta is 1.2. The U.S. T-bill rate of return is 6.00% and the total market index rate of return is 11.00%. What is Company's market value weighted-average cost of capital?
A. 10.40%
B. 11.17%
C. 12.00%
D. 13.12%