Reference no: EM132771433

You have narrowed your selection down to two choices: Project A and project B. The projects' expected net cash flow are as follows:

Expected Net Cash Flow

Year           Project A         Project B

0                  -375                -575
1                 -300                 190
2                  -200                190
3                  -100                  190
4                    600                 190
5                     600                190
6                     926                190
7                      -200               0

Problem 1: Assume that the firm has a cost of debt of 7%, a cost of equity of 12%, tax rate of 30%; debt to total assets = 0.4. What is the firm's weighted average cost of capital?

Problem 1: Assume that the projects are independent and the WACC is 12%; which project would you choose?

Problem 2: Assume that the WACC is 12%; which project would you choose?

Problem 3: Assume that the WACC is 18%; which project would you choose?

Problem 4: Construct NPV Profile for Project A and B?

Problem 5: What is each project IRR? (Based on the IRR, which project would you choose?

Problem 6: At a WACC of 12% what is the regular and discounted payback period for these two projects?

Problem 7: Assume that the firm's number of outstanding shares is 100, what is the expected change in the stock's price? What are the implicit assumptions that you are making for the expected change to realize?