All or some red numbers and text will be changed for actual Exam. 1. AMG needs to finance a new 250,000 investment opportunity, 50% will be raised by issuing a new 5- year bond and the remaining amount by issuing common stock. AMG has outstanding a 5-year 4.00% coupon bond that yields 5.00%. T-bills yield 2.50% the market risk premium is 7.00% and the firm's beta is 1.50. The applicable tax rate is 20%. a. The annual coupon payment on the bonds reduces the firm's taxes by what dollar amount? b. What is the firm's after-tax cost of debt? c. What is the firm's cost of equity capital? d. If the after-tax cost of debt is 3.00% and the cost of equity is 8.00% calculate the WACC. 2. A company intends to purchase a new machine costing 300,000. The cost of the machine will be depreciated according to the following schedule: 50%, 30%, and 20%. The applicable tax rate is 20%. a. What is the depreciation tax shield for year 2? b. At the end of year 2 the machine is sold for 60,000. What is the after-tax proceeds on the machine? c. What is the book value at the end of year 1? 3. Revenue in year 1 is 80,000 and grows at an annual rate of 10%. Cost of goods sold is 68% of revenue, operating expenses 22% of revenue, and advertising expenses are 8,000 and 5,000 in years 1 and 2. respectively. The applicable tax rate is 20%. Calculate the operating cash flows for years 1 and 2. 4. The additional revenue from a project is estimated to be 60,000 the first year and 66,000 the second. Cost of goods sold is 65% of revenue; account receivable is 12% of revenue, inventory 16% of COGS and accounts payable is 6% of COGS. a. Calculate the investment in net working capital for years 1, 2 and 3. b. For the first year calculate Cash receipts from revenue I. Cash paid to suppliers ill. Cash gross profit 5. Calculate the NPV and ROIC of the cash flows below. The WACC is 10%. i. Cash flows 1630.000; 6,000 10.000 6,000 4 3,000 12.000 5 2,000