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Question 5:

J. Mourinho Manufacturing Company is considering a 3-year investment project that involves the purchase of new manufacturing equipment that costs $102,000 today. The equipment will be depreciated on a straight-line basis over 3 years at a rate of 33.33% per year. The company expects the salvage value of the equipment will equal zero at the end of year three. However, the company expects to sell the equipment at the end of the third year to generate a $10,000 after-tax cash inflow. The utilization of the equipment will increase the companys net operating working capital at the beginning of the project by $13,000.

The equipment is expected to generate revenues of $ 91,000 in the first year, and then revenues will grow by 1.75% per year after the first year. The operating costs (excluding depreciation) are expected to be $38,000 in the first year, and then operating costs will grow by 1.5% per year after the first year. The company tax rate is 35%, and its weighted average cost of capital (WACC) is 12.55 percent. What are the NPV and MIRR of this investment project?

Question 6:

B. Guardiola Corporation (BGC)s stock is currently selling for $50 per share. The last dividends paid by BGC were $2.00 per share. BGC is expected to grow at an 8 percent constant rate forever. The risk-free rate is 4 percent, the market risk premium is 6.6 percent, and BGCs beta is 1.25. BGC bonds are matured in 25 years with an 8 percent coupon rate. The par value of bonds is $1000, and the interest payments are made annually. The bonds are currently selling for $960 per bond. BGCs target capital structure is 40% debt and 60% common equity. BGCs tax rate is 40%.

a) What is the firms before-tax cost of debt, b) what is the firms after-tax cost of debt, c) What is firms cost of common equity using CAPM approach, d) What is firms cost of common equity using discounted cash flow approach, and e) what is firms WACC using CAPM approach.

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