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7. A firm has 60% of debt and 40% of equity as its capital. The cost of debt is 8%, the cost of equity is 15%, and the tax rate is 35%. Determine the firm's cost of capital. 7.02% 9.12% 10.80% 13.80%

7. A firm has 60% of debt and 40% of equity as its capital. The cost of debt is 8%, the cost of equity is 15%, and the tax rate is 35%. Determine the firm's cost of capital. 7.02% 9.12% 10.80% 13.80%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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FINANCE1A

7th Question

7. A firm has 60% of debt and 40% of equity as its capital. The cost of debt is 8%, the cost of equity is 15%, and the tax rate is 35%. Determine the firm's cost of capital. O 7.02% 9.12% 10.80% 13.80% 8. A firm is considering a project requiring an investment of $27,000. The project would generate an annual cash flow of $6,296 for the next seven years. The company uses the straight-line method of depreciation. The approximate internal rate of return for the project is 6.00% 8.00% 12.00% 14.00% 9. Individual R is considering two investments. Each will cost $20,000 initially. Project 1 will return annual cash flows of $10,000 in each of three years. Project 2 will return $5,000 in year 1, $10,000 in year 2, and $15,000 in year 3. Roman requires a minimum rate of return of 10%. What is the NPV of Project 1, Project 2,? Which project must be selected? (round off to the nearest tens). O $20,000; $20,220; Project 2 $25,670; $24,520; Project 2 $4,870; $4,080; Project 1 $22,530; $22,510; Project 1
Transcribed Image Text:7. A firm has 60% of debt and 40% of equity as its capital. The cost of debt is 8%, the cost of equity is 15%, and the tax rate is 35%. Determine the firm's cost of capital. O 7.02% 9.12% 10.80% 13.80% 8. A firm is considering a project requiring an investment of $27,000. The project would generate an annual cash flow of $6,296 for the next seven years. The company uses the straight-line method of depreciation. The approximate internal rate of return for the project is 6.00% 8.00% 12.00% 14.00% 9. Individual R is considering two investments. Each will cost $20,000 initially. Project 1 will return annual cash flows of $10,000 in each of three years. Project 2 will return $5,000 in year 1, $10,000 in year 2, and $15,000 in year 3. Roman requires a minimum rate of return of 10%. What is the NPV of Project 1, Project 2,? Which project must be selected? (round off to the nearest tens). O $20,000; $20,220; Project 2 $25,670; $24,520; Project 2 $4,870; $4,080; Project 1 $22,530; $22,510; Project 1
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