ATTEND THE QUESTION ONLY IF YOU CAN SOLVE BOTH THE QUESTIONS. AWARE OF CHEGG POLICIES SO DO NOT SAY ONLY ONE CAN BE DONE.

ANSWER BOTH OR MAKE WAY TO OTHERS TO ANSWER.

WILL REPORT THE ANSWER IF ONE IS ANSWERED.

Growth Option: Decision-Tree Analysis Dexter Inc. is considering selling trademarked, orange-haired curly wigs. The purchase cost for a 2-year franchise to sell the wigs is $20,000. If demand is good (40% probability), then the net cash flows will be $25,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $4,000 per year for 2 years. Fethe's cost of capital is 11%.

a. What is the expected NPV of the project? A negative value should be entered with a negative sign. Round your answer to the nearest dollar. $ ______

b. If Dexter Inc. makes the investment today, then it will have the option to renew the franchise fee for 2 more years at the end of Year 2 for an additional payment of $20,000. In this case, the cash flows that occurred in Years 1 and 2 will be repeated (so if demand was good in Years 1 and 2, it will continue to be good in Years 3 and 4). Write out the decision tree. Note: The franchise fee payment at the end of Year 2 is known, so it should be discounted at the risk-free rate, which is 4%. Use decision-tree analysis to calculate the expected NPV of this project, including the option to continue for an additional 2 years. A negative value should be entered with a negative sign. Round your answer to the nearest dollar. $ ______

Ross Inc., an engineering firm, has the following capital structure:

	Equity	Preferred Stock	Debt
Market Price	$79.17	$165.03	$949.77
Outstanding units	117,000	6,000	5,736
Book Value	$2,641,000	$1,144,000	$6,636,000
Cost of Capital	15.97%	12.67%	9.9%

Using market value and book value (separately, of course), find the adjusted WACC for Ross Inc. at the following tax rates:

What is the market value adjusted WACC for Ross Inc.at a tax rate of 10%

What is the market value adjusted WACC for Ross Inc.at a tax rate of 15%

What is the market value adjusted WACC for Ross Inc.at a tax rate of 20%

What is the market value adjusted WACC for Ross Inc.at a tax rate of 25%