1. Cost of capital and products. How could the cost-of-capital structure influence a product's price or a product's quality?
2. Net present value and cost of capital. HT Inc. is considering a new process to speed production and reduce costs. The project will last 7 years and have an initial investment of $1,400,000. The after-tax cash flows are estimated at $315,000 per year. The firm has a targeted debt-to-equity ratio of 1.5.
Its pretax cost of equity is 14 percent, and its pretax cost of debt is 8 percent. The tax rate is 40 percent. What is the NPV of this project?