1) Should a project be accepted if it offers an annual after-tax cash flow of $1,500,000 indefintely, cost $10 Million, is riskier than the firms avergae projects, and the firm uses a 15% WACC?
A) No, Since NPV is negative
B) Yes, since a zero NPV indicates a marginal acceptability.
C) yes since NPV is positive.
D) no, SInce NPV is zero
2) An implicit cost of increasing the proportion of debt in a firms capital structure is that?
A) the tax shield will not apply to the added debt.
B) the firm's asset beta will increase
C) equityholders will demand a higher rate of return.
D) the equity-to-value ratio will decrease.
4) When company X has 2 million shares of common stock outstanding at a book value of $2 per share. The stock trades for $2.50 per share. It also has $2 million in face value of debt that trades at 90% of par. What is its ratio of debt to value for WACC purposes?
A) 33.33%
B) 31.08%
C) 28.62%
D) 26.47%
Please either explain or show calculations.