2203 P3.docx - 1 You are given the following information for Magrath Power Co Assume the company\u2019s tax rate is 35 Debt 10,000 6.4 coupon bonds

# 2203 P3.docx - 1 You are given the following information...

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1. You are given the following information for Magrath Power Co. Assume the company’s tax rate is 35%.Debt: 10,000 6.4% coupon bonds outstanding, \$1,000 par value, 25 years to maturity, selling for 108% of par; the bonds make semiannual payments.Common stock: 495,000 shares outstanding, selling for \$63 per share; the beta is 1.15.Preferred stock: 35,000 shares of 3.5% preferred stock outstanding, currently selling for \$72 per share.Market: 7% market risk premium and 3.2% risk-free rate.What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.)
2.Conrad Mining Inc. uses a cost of capital of 11% to evaluate average risk project and it adds or subtracts 3% to adjust for risk. Currently the firm has two mutually exclusive projects under consideration. Both the projects have an initial cost of \$100,000 and will last four years.Project A, riskier than average, will produce an annual cash flow of \$72,164 atthe end of each year.Project B, of less than average risk, will produce cash flows of \$145,340 at theend of Years 3 and 4 only.
Calculate the NPV value of Project A and B. (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit \$ sign in your response.)NPVProject A\$ 110,265.13 ± 1.1Project B\$ 122,204.82 ± 10%Which investment should the firm choose?