1. ABC Company has a beta of 1.45. The current return on the stock market is estimated at 11.5% and the risk-free rate is 3.5%. Its before-tax cost of debt is 7% and its marginal tax rate is 30%. Use the data from this balance sheet to answer the following problems:

Assets			Liabilities & Equity
Cash	250		Long-Term Debt	6,423
Accounts Rec.	850		Equity	1,387
Inventories	2,277
Net Fixed Assets	4,433
Total Assets	7,810		Total Liab. & Equity	7,810

1. Calculate the WACC for ABC Company.

1. Calculate the NPV for Project A and B using the WACC from part a.

Year	0	1	2	3	4	5
Project A	$-1,750	854	450	350	675	812
PV
NPV
Project B	$-4,275	1,685	967	735	920	512
PV
NPV

1. Which project, if any, should ABC Company accept?

1. Why?