1. Reactive Power Generation has the following capital structure. Its corporate tax rate is 40%. Security Market Value Required Rate of Return Debt $ 30 million 4 % Preferred stock 30 million 6 Common stock 40 million 10 What is its WACC?
2. Consider an asset that costs $431,200 and is depreciated straight-line to zero over its 12-year tax life. The asset is to be used in a 7-year project; at the end of the project, the asset can be sold for $53,900. Required : If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset?