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# A4.(Estimating the WACC with three sources of capital) Eschevarria Research has the capital structure given here. If Eschevarria's tax rate is 30%,

A4.(Estimating the WACC with three sources of capital) Eschevarria Research has the capital structure given here. If Eschevarria’s tax rate is 30%, what is its WACC?
Â Book Value Market Value Before-Tax Cost
Bonds
\$1,000
\$1,000
8%
Preferred stock
400
300
9%
Common stock
600
1,700
14%
B12.(Leveraged returns) You have a chance to make a \$70,000 one-year investment. The investment is expected to earn 15%, and there are no taxes. If you borrow \$45,000 at 9% and put up the other \$25,000 with your own money, what will be your expected return on the \$25,000?

A10.(NPV) An investment of \$25 will generate an annual cash flow of \$2 forever. If the cost of capital is 7%, what is the NPV of this investment?

B4.(NPV and shareholder wealth) Stockholders are surprised to learn that the firm has invested \$43 million in a project that has an expected payoff of \$8 million per year for six years. The project’s cost of capital is 12%.
1. What is the project’s NPV?
2. There are 3 million outstanding shares. What should be the direct impact of this investment on the per-share value of the common stock?

A4.(Net investment outlay) The cost of a new machine is \$70,000 plus an additional \$8,000 for freight and setup costs. The old machine that is being replaced has a book value of \$15,000 and can be sold for \$7,000. An investment of \$15,000 in working capital is also required. The marginal tax rate is 30%. What is the net investment outlay?

A9.(EAC) The total present value of all costs associated with an asset over a seven-year life is \$73,285. If the asset has a cost of capital of 11%, what is the EAC of using this asset?

A4.(Estimating the WACC with three sources of capital) Eschevarria Research has the capital
structure given here. If Eschevarria’s tax rate is 30%, what is its WACC?
Â Book Value Market Value...

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