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hmw_5_11-24_-26.docx
11.
value:
1.00 points
Speedy Delivery Systems can buy a piece of equipment
that is anticipated to provide a return of 11 percent and can
be financed at 8 percent with debt. Later in the year, the firm
turns down an opportunity to buy a new machine that would
yield a return of 18 percent but would cost 20 percent to
finance through common equity. Assume debt and common
equity each represent 50 percent of the firm’s capital
structure.

a.
Compute the weighted average cost of capital.
(Do not round intermediate calculations. Input your
answer as a percent rounded to 2 decimal places.)

Which project(s) should be accepted?

Piece of equipment
12.
value:
1.00 points
A brilliant young scientist is killed in a plane crash. It is
anticipated that he could have earned $310,000 a year for the
next 30 years. The attorney for the plaintiff’s estate argues
that the lost income should be discounted back to the present
at 4 percent. The lawyer for the defendant’s insurance
company argues for a discount rate of 9 percent.
What is the difference between the present value of the
settlement at 4 percent and 9 percent? Compute each one

separately. Use
Appendix D
for an approximate answer but calculate your final
answer using the formula and financial calculator methods.
(Do not round intermediate calculations. Round your
answers to 2 decimal places.)

Difference
$
13.
value:
1.00 points
The Goodsmith Charitable Foundation, which is tax-
exempt, issued debt last year at 13 percent to help finance a

new playground facility in Los Angeles. This year the cost of
debt is 20 percent higher; that is, firms that paid 15 percent
for debt last year will be paying 18.00 percent this year.
a.
If the Goodsmith Charitable Foundation borrowed money
this year, what would the aftertax cost of debt be, based on
their cost last year and the 20 percent increase?
(Do not round intermediate calculations. Input your
answer as a percent rounded to 2 decimal places.)
Aftertax cost of debt
%
b.

If the receipts of the foundation were found to be taxable
by the IRS (at a rate of 20 percent because of involvement in
political activities), what would the aftertax cost of debt be?
(Do not round intermediate calculations. Input your
answer as a percent rounded to 2 decimal places.)