1. Assume that you are an intern with the Lowell Company, and you have collected the following data: The yield on the company's outstanding bonds is 7.75%; its tax rate is 21%; the next expected dividend is $0.65 a share; the dividend is expected to grow at a constant rate of 6.00% a year; the price of the stock is $15.00 per share; the flotation cost for selling new shares is F = 10%; and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget?

   		8.7%
   		9.11%
   		9.52%
   		9.83%

2. Two mutually exclusive projects being considered by a firm and have the following projected cash flows:

Project A Project B

Year Cash Flow Cash Flow

0 ($120,000) ($120,000)

1 50,000 30,000

2 50,000 30,000

3 50,000 30,000

4 30,000

5 30,000

6 30,000

The cost of capital is 10 percent. Using the NPV rule, evaluate both projects using the equivalent annual annuity approach

		Accept Project A
		Accept Project B
		Accept both
		Accept neither