Chapter 7, Problem 7.5E

Pacific Power Corporation (PPC) uses only debt and common equity in its capital structure. The company can borrow unlimited amounts at an interest rate of 8% while maintaining its target capital structure of 45% debt and 55% common equity. Its last dividend (DO) was $2.20, the expected constant growth rate is 5%, and its common stock currently sells for $32. PPC's tax rate is 35%. The company is evaluating two investment projects: Project X with a return of 11% and Project Y with a return of 9%. Both projects have similar risk levels that match the company's existing operations. What is PPC's cost of common equity?

Healthcare Innovations Ltd. is considering purchasing a new diagnostic machine for heart. disease testing. The machine will cost $75,000. The company estimates that it could charge $30.00 for a test, while the actual cost to perform each test would be $8.00. What would the profit be for a quantity of 10,000 heart disease tests? a) $150,000 b) $145,000 c) $135,000 d) $160,000

Net income?