Western industrial products is considering project

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Reference no: EM132059402

1. Wild Flowers Express has a debt-equity ratio of .60. The pretax cost of debt is 9 percent while the unlevered cost of capital is 14 percent. What is the cost of equity if the tax rate is 34 percent?

A. 15.98%

B. 8.78%

C. 16.83%

D. 17.30%

E. 7.52%

2. Western Industrial Products is considering a project with a five-year life and an initial cost of $110,000. The discount rate for the project is 13 percent. The firm expects to sell 2,400 units a year. The cash flow per unit is $25. The firm will have the option to abandon this project at the end of year three (after year three's sales) at which time the project's assets could be sold for an estimated $55,000. The firm should abandon the project at the end of year three if the expected level of annual sales, starting with year 4, falls to _____ units or less. Ignore taxes.

1,443 units

2,230 units

928 units

375 units

1,319 units

Reference no: EM132059402

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