Winter 2009 Midterm Solution

# Winter 2009 Midterm Solution - rB = 10 = 0.08 125 3 rs = r...

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ANSWER 1: MV of Debt = B = \$100,000,000 x 125% = \$125,000,000 2 MV of Equity = S = 000 , 125 , 153 \$ 000 , 000 , 5 02 . 0 14 . 0 ) 02 . 0 1 ( 5 # ) 1 ( 0 = × + - = × - + ofShares g r g D s 3 B/S = 125/153.125 B/V = 125/278.125 S/V = 153.125/278.125 1 Project A 08 . 0 125 10 = = B r 3 % 8 . 12 128 . 0 ) 08 . 0 ( 1 . 1 04 . 0 ) ( = = + = - + = f A f s r r r r β 2 092045 . 0 125 . 278 125 . 153 128 . 0 125 . 278 125 ) 40 . 0 1 ( 08 . 0 ) 1 ( = + - = + - = V S r V B T r r s c B WACC 2 073 , 986 \$ 092045 . 0 ) 092045 . 1 ( 1 1 ) 40 . 0 1 ( 000 , 000 , 5 000 , 000 , 28 \$ 25 = - - + - = NPV ACCEPT 3 Project B 08 . 0 = B r % 2 . 15 152 . 0 ) 08 . 0 ( 4 . 1 04 . 0 = = + = s r 2 % 5258 . 10 105258 . 0 125 . 278 125 . 153 152 . 0 125 . 278 125 ) 4 . 0 1 ( 08 . 0 = = + - = WACC r 2 Since project is earning 12%, therefore ACCEPT 3 Project C 08 . 0 = B r % 4 . 18 184 . 0 ) 08 . 0 ( 8 . 1 04 . 0 = = + = s r 2 % 2876 . 12 122876 . 0 125 . 278 125 . 153 184 . 0 125 . 278 125 ) 4 . 0 1 ( 08 . 0 = = + - = WACC r 2 610 , 561 , 6 \$ 390 , 438 , 43 000 , 000 , 50 \$ 04 . 0 122876 . 0 ) 40 . 0 1 ( 000 , 000 , 6 000 , 000 , 50 \$ - = + - = - - + - = NPV REJECT 3

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ANSWER 2: a. 000 , 000 , 30 \$ 05 . 0 15 . 0 ) 4
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Winter 2009 Midterm Solution - rB = 10 = 0.08 125 3 rs = r...

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