3. Company SmallCap is in the food processing business and has a market capitalization of $100 million and a market beta of 1.5. SmallCap considers a merger with LowCost, another company mainly producing computer software that has a market capitalization of $400 million and a market beta of 1.2.

The CEO of SmallCap argues that this will reduce their cost of capital. Do you agree with the comment?

Group of answer choices

Depending on the project

More information needed

Yes

No

2. A corporation is considering purchasing a machine that has an expected eight-year life and will generate for the firm $10,000 per year in net operating income before taxes. The machine will be depreciated using the straight-line method to its anticipated salvage value of $12,000. The firm has a 21% marginal tax rate and the required return for this project is 12%. If the machine costs $50,000, what is incremental cash flow in year 8?

Group of answer choices

4147.5

8897.5

5250

20897.5