16. Watts Co. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected. 5 WACC: 10.00% Year 0 1 2 3 4 Cash flows -$850 $300 $320 $340 $360 a. 14.08% b. 15.65% c. 17.21% d. 18.94% e. 20.83% 17. Suzanne's Cleaners is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 4 5 Cash flows -$1,100 $300 $310 $320 $330 $340 a. 2.31 years b. 2.56 years c. 2.85 years d. 3.16 years e. 3.52 years 18. Which of the following statements is CORRECT? a. Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC. b. Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing. However, this action still may raise the company's WACC. c. Increasing a company's debt ratio will typically increase the marginal cost of both debt and equity financing. However, this action still may lower the company's WACC. d. Since a firm's beta coefficient it not affected by its use of financial leverage, leverage does not affect the cost of equity. e. Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC. 19. Best Bagels, Inc. (BB) currently has zero debt. Its earnings before interest and taxes (EBIT) are $100,000, and it is zero growth company. BB's current cost of equity is 13%, and its tax rate is 40%. BB is considering moving to a capital structure that is comprised of 20% debt and 80% equity, based on market values. The debt would have an interest rate of 7%. The new funds would be used to repurchase stock. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise to 14%. If this plan were carried out, what would BB's new value of operations be? a. $498,339 b. $512,188 c. $525,237 d. $540,239 e. $590.718