Compute weighted average cost of capital if firms tax rate

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Reference no: EM13729286

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%

Reference no: EM13729286

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