2. (9 Points) A company is considering the purchase of a new machine. The cost of the machine is $70,000. The annual cash flows are: 1 Year Cash Flow $13,000 2 $24,000 3 $33,000 4 $21,000 A. If the cost of capital is 8%, what is the net present value of the machine? B. What is the internal rate of return? C. Should the machine be purchased? Why? SECTION III COST OF CAPITAL 13 POINTS 1. (8 Points) A company has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $95, and is currently selling for $945 per bond. The company is in a 35% tax bracket Part A. Compute the yield to maturity for the bond issue Part B. Make the appropriate tax adjustment to determine the after-tax cost of the debt 2. (5 Points) A company's capital structure is as follows: Debt Preferred Stock Common Equity 39% 12% 49% The after-tax cost of debt is 7.5%; the cost of preferred stock is 9%; and the cost of common equity (in the form of retained earnings) is 12.5%. Calculate the company's weighted average cost of capital