15. Blue Water Boats is considering a new project with perpetual revenue of $435,000, cash costs of $310,000, and a tax rate of 21 percent. The firm plans to issue $250,000 of debt at an interest rate of 7.3 percent to help finance the initial project cost of $475,000. The levered discount rate is 16.7 percent. What is the net present value of this project?

1. $279,985

2. $168,424

3. $59,506

4. $128,211

5. $284,022

16. Salmon Inc. has debt with both a face and a market value of $227,000. This debt has a coupon rate of 7 percent and pays interest annually. The expected earnings before interest and taxes is $87,200, the tax rate is 21 percent, and the unlevered cost of capital is 12 percent. What is the firm's cost of equity?

1. 14.14 %

2. 13.25 %

3. 13.89 %

4. 13.92 %

5. 14.27 %

19. What is the inspiration from MM theory without tax?

1. Required return on equity is not affect by leverage.

2. The only way to increase firms value is increase EBITs, i.e. focus on operation side.

3. Leverage increases firm value.

4. Firm manager can fool investors by leverage.