1. A manufacture of video games develops a new game over 2 years. This costs $850,000 per year with one payment made immediately and the other at the end of two years. When the game is released, it is expected to make $1.50 million per year for 3 years after that. What is the NPV of this decision if the cost of capital is 9%?
A. $1,793,420
B. $3,097,726
C. $1,630,382
D. $2,608,611
2. Sirom Scientific Solution has $10 million of outstanding equity and $10 million of bank debt. The bank debt costs 7% per year. The estimated equity beta is 2. IF the market risk premium is 8%, and the risk -free rate is 5%, compute the weighted average cost of capital if the firm's tax rate is 35%.
A. 14.05%
B. 14.69%
C. 13.41%
D. 12.78%