1. A project has an initial outlay of $2,774. It has a single cash flow at the e
ID: 2717897 • Letter: 1
Question
1.
A project has an initial outlay of $2,774. It has a single cash flow at the end of year 4 of $4,755. What is the internal rate of return (IRR) for the project?
Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)
Your Answer:
2.
Black Hill Inc. sells $100 million worth of 20-year to maturity 13.12% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $981 for each $1,000 bond. What is the before-tax cost of capital for this debt financing?
Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)
You should use Excel or financial calculator.
3.
The Black Bird Company plans an expansion. The expansion is to be financed by selling $61 million in new debt and $48 million in new common stock. The before-tax required rate of return on debt is 11.23% percent and the required rate of return on equity is 13.77% percent. If the company is in the 34 percent tax bracket, what is the weighted average cost of capital?
Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)
Explanation / Answer
Solution:
Question 2
Before tax cost of capital of Debt financing = 13.12 %
Before tax cost of Capital od debt is the annual rate paid by the firm on raising the finance through debt.
Question 3
Market Value Weights Cost of Capital Debt 61,000,000 55.96% 11.23% ( 1 - 34% ) = 7.41 % 4.15% Equity 48,000,000 44.04% 13.77% 6.06% 109,000,000 100.00% Cost of Capital 10.21%Related Questions
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