Hi there,I was a bit stuck on a few questions, are you able to help me out. Many thanks Helen.
1) A company is financed 60% by debt and 40% by equity. The pre-tax cost of debt is currently 10%. The Finance Director has stated that the weighted average cost of capital for the company is 9.6%. What is the cost of equity? Assume the tax rate is 40%.
2) Ashley Ardern has been researching a vaccine for Covid-19. The cost of the research efforts has already amounted to $500,000.
If Ashley Ardern carries on the research efforts additional lab space and equipment will need to be purchased for $1,000,000 to ensure adequate social distancing is maintained. At the end of a 2 year period, it is estimated that the salvage value of the equipment will be $0.
The results of the research are expected to result in a vaccine that will generate positive cash flows for two years. The estimated after-tax operating cash inflows are $572,000 in year 1 and $744,000 in year 2. The operating cash flows are earned evenly throughout the year.
Additional working capital of $100,000 will be required at the start of the project.
The company has an after-tax required rate of return of 10% per annum.
What is the the payback period (to the nearest month)??
3) I would like to go to Tonga for a holiday once the lockdown order is lifted and the border reopens. It is estimated that the border to Tonga will not be open until 10 months from today. I have $1,600 in the bank that is earning interest of 4% monthly. How much money will I have for my holiday when the border reopens for travel?