1. A project has the following information. Price is $62 per unit, variable cost is $41 per unit, fixed costs is $15500, required return is 12%, initial investment $24000, project life is 4 years. Ignoring taxes,
a) What’s accounting breakeven
b) What’s cash breakeven
c) What’s financial breakeven?
d) What’s DOL at financial breakeven level?
2. Molineux corp. has market value of equity at $20 billion, and its debt book value is $4 billion. Its cost of equity is 12%, and pretax cost of debt of 7%. Its tax rate is 35%.
a) What’s the company’s capital structure?
b) What’s the after tax cost of debt?
c) What’s the company’s WACC?