ME3232-F10-hw9 - ME 3232 Homework #9, due 11/26/10 1. The...

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ME 3232 Homework #9, due 11/26/10 1. The Beaver Corporation is considering three independent investments. The required investments and expected IRRs of these projects are as follows: The company intends to finance the projects by 40% debt and 60% equity. The after-tax cost of debt is 8% for the first $100,000, after which the cost will be 10%. Retained earnings (internally generated) in the amount of $150,000 are available for investment. The common stockholders’ required rate of return is 20%. If new stock is issued, the cost, i c , will be 23%. (a) What would be the marginal cost of capital to raise the first $250,000 project cost? (b) Based on the marginal cost of capital schedule and the investment opportunity schedule defined in Problem 1, what would be the reasonable MARR (or discount rate) to use in evaluating the investments? MARR < 17.8 % 17.8% < MARR ≤ 18% 18% < MARR < 32% MARR = 15.2% Investment Opportunity Schedule Project Investment IRR A B C $180,000 250,000 120,000 32 18 15
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2. Consider the following investment projects:
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ME3232-F10-hw9 - ME 3232 Homework #9, due 11/26/10 1. The...

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