Chapter 9 & Chapter 14 Homework Homework Problems: (1) Company BW has issued 2,000 corporate bonds with a maturity value of $1,000 and a coupon rate of 6 %. Coupon payments are made every 6 months and those bonds will mature in 6 months from today. Current market price of those bonds is $978.56. Marginal corporate income tax rate is 34 % , find the annual after-tax cost of debt for these bonds. [15 points] *** HINT: What have you found? Semi-annual rate or annual rate? (2) Company BW has $500,000 loan outstanding. The annual loan interest rate is 6 % with monthly compounding (meaning BW is making monthly payments). Find the annual after-tax cost of debt for the loan. [10 points] (3) Company BW has issued 2,000 preferred stocks. The par value is $100, dividend rate is 8 % , and dividend is paid at the end of cach year. Market price is $85 a share. Find the annual cost of preferred stock. [10 points (4) Company BW has 50,000 shares outstanding and the market price is $23 per share. People believe this company is twice as risky as the stock market. Current T-bill rate is 3% and expected stock market return this yeur is 9 % . What is BW's annual cost of equity? [15 points (5) Find the overall (annual) cost of capital for BW (WACC). [20 points] (6) Company BW has the following two investment opportunities (A and B). a) Which project is better, according to NPV ? [15 points) b) Which project is better, according to Modified IRR? [15 points] Net Cash Flows Project B -6,000 2,500 Project A -8,000 End of Year 0 500 1 3,500 3,500 3,000 11,500 3 4