1. Suppose that the required rate of return on a firm's debt is 8%, the corporate tax rate is 34%, and the required rate of return on the firm's equity is 15%. If the firm finances its projects with 40% debt, what is the firm's WACC?
2. Suppose that U.K. Motors Ltd. is considering an investment of £30 million to develop a new factory.
Assume that its stockholders require a 22% rate of return, that its bondholders require a 9% rate of return, that the U.K. corporate tax rate is 40%, that 35% of the project will be financed by debt, and that 65% of the project will be financed with equity. What must be the annual income from the project if it is to be a zero net present value investment?