A)

Suppose your company has a beta of 1.4. The market risk premium is expected to be 9% and the current risk-free rate is 3%. We have used analysts estimates to determine that the marketbelieves our dividends will grow at 6.5% per year and the dividend just paid was $2. Our stock is currently selling for $22.75. What is our cost of equity?

B)

You are a financial manager at a 1,500 room hotel in New York. Suppose your hotels laundrysystem is working fine, but you are considering an upgrade to a more efficient system. The existing laundry facility has another 3 years of expected life and net annual costs are $1,650,000. The proposed system costs $2,000,000, has 4 years of expected life and costs $700,000 to run annually. What technique should you use to answer this question? Ensure to test the assumption to ensure they hold. Which system should you choose if your hotels cost of capital is 10%?