Finance 300 – Case #2Finance 300Summer III 2004Case #21. The following information is for Company X.kd0.08krf0.03km0.11beta 1.2kp0.07tax rate 0.40A. Calculate ke - cost of equity.Capital Structure - 2001 (in millions)Debt $75.00 Preferred Stock $25.00 Common Stock $150.00 Total $250.00 B. Calculate the WACC for 2001 for the Company X.Company X is made up of three Divisions, A, B, & C. Suppose Division B is offered a new project with the information provided below.No preferred stockTarget Debt Ratio 45%Division's Beta 0.9C. Calculate the Division's WACC.Finance 300 – Case #2D. Which WACC is higher, Company X or Division B? Why?2. Use the information below to answer all questions A-HCash Flows in $ millions 0 1 2 3Project Y $ (10.50) $ 6.00 $ 3.00 $ 4.00 Project Z $ (10.50) $ 4.00 $ 6.00 $ 3.00 A. For each Project Y & Z, calculate the Pay Back Period. B. Based on the Pay Back Period, which is the better project?C. Assume the WACC is 10%, calculate NPV for both Projects.Finance 300 – Case #2D. Based on NPV, which is the better Project?E. Calculate the IRR for both Projects.F. If Projects Y & Z are independent, based on Part E what is the ultimate decision?G. If WACC increases to 12%, once again assuming independence, what is the decision?H. Calculate MIRR assuming WACC is 10%.Finance 300 – Case #23. Use the following information to model cash flows.Fixed Assets $10.00 NOWC $1.00 SV $2.00 Economic Life 4 YearsTaxes 40%WACC 10%Sales $15.00 per yearCosts 70% of SalesYear 0 1 2 3 4MACRS 33% 45% 15% 7%Initial CFFixed Asset NOWC Total Operating CFSalesV CostsDep.OI (BT)TaxesOI (AT)Add Dep.OCFTerminal CFReturn of NOWC Salvage ValueTaxes on
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