Chapter 9 – Q10
10 . Net present value . Lepton Industries has four potential projects , all with an initial cost of $ 1,500,000 . The capital budget for the year will allow Lepton to accept only one of the four projects . Given the discount rates and the future cash flows of each project , determine which project Lepton should accept .
ANSWER : Chapter 11 – Q12
12 . Book value versus market value components . The CFO of DMI is trying to determine the company ’ s WACC . Brad , a promising MBA , says that the company should use book value to assign the components percentage for the WACC . Angela , a long-time employee and experienced financial analyst , says the company should use market value to assign the components . The after-tax cost of debt is at 7 %, the cost of preferred stock is at 11 %, and the cost of equity is at 14 %. Calculate the WACC using both the book value and market value approaches with the following information . Which do you think is better ? Why ?
Chapter 16
9 . Finding the WACC . Monica is the CFO of Cooking for Friends ( CFF ) and uses the pecking order hypothesis ( POH ) philosophy when she raises capital for company projects . Currently , she can borrow up to $ 600,000 from her bank at a rate of 8.5 %, float a bond for $ 1,100,000 at a rate of 9.25 %, or issue additional stock for $ 1,300,000 at a cost of 17 %. What is the WACC for CFF if Monica chooses to invest : a . $ 1,000,000 in new projects ? b . $ 2,000,000 in new projects ? c . $ 3,000,000 in new projects ?