1. I need two designers working three days each to design a new software system. One code-writer will spend eleven days writing software to implement the design. One tester will test and correct the resulting code over three days. What is the level of effort associated with this project?
a. 20 person days
b. $2,525
c. 15 days
d. Cannot compute without data on indirect costs
2. XYX corporation’s capital structure calls for 60% debt and 40% common equity. The company’s cost of debt is 8%. Retained earnings are estimated to be $160 million. The company’s cost of retained earnings is 14% and the cost of external common equity is 16%. The corporate tax rate is 30%. Calculate the WACC above the RE break point.
6.76%
7.76%
8.76%
9.76%