# Cost of Capital Questions and Answers

Finance

Cost of CapitalCecilia owns her business and is considering an investment project, which requires an initial cost of $10,000. In addition, the project requires (additional) shutdown costs of $3000 four years from now.
benefit side is: the project will pay $5000 each year for the next three years.
What is the NPV of this investment project if the cost of capital is 7%?

Finance

Cost of CapitalKeys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The company's marginal tax rate is 40.00%, but Congress is considering a change in the corporate tax rate to 45.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted? Do not round your intermediate calculations.
a. -0.42%
b. -0.44%
c. -0.30%
d. -0.35%
e. -0.36%

Finance

Cost of CapitalYou were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 12.00%. The firm will not be issuing any new stock. What is its WACC?
a. 8.93%
b. 6.96%
c. 6.69%
d. 7.59%
e. 7.68%

Finance

Cost of CapitalCarlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $14,200 at t = 0. Project S has an life of 2 years with after-tax cash inflows of $7,400 and $13,600 at the end of Years 1 and 2, respectively. In addition, Project S repeated at the end of Year 2 with no changes in its cash flows. Project L has an expected life of 4 years with after-tax cash inflows $6,000 at the end of each of the next 4 years. Each project has a WACC of 9%. What is the equivalent annual annuity of the most profitable project? Do not round your intermediate calculations.
a. $1,358.20
b. $2,294.25
c. $1,616.90
d. $2,156.59
e. $2,454.85

Finance

Cost of CapitalBosio Inc.'s perpetual preferred stock sells for $85.00 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC?
a. 8.75%
b.12.81%
c. 8.44%
d.10.42%
e. 1.35%

1