Chapter 9/10/11 , 2019 Based upon the following facts calculate the Weighted Average Cost of Capital (WACC) for Student Success Corporation (SSC): PART 1 WACC Tax rate = 40% Debt Financing: $10,000 Face Value 10-Year, 5% Coupon, Semiannual Non-Callable Bonds Selling for $11,040 New bonds will be privately placed with no flotation cost. Common Stock: Current Price $40; Current Dividend = $3.00 and Growth Rate = 5%. Common Stock: Beta = 1.1; Risk Free Rate 2.0%; Required Return of the Market 7% Capital structure: 40% Debt, 60% Common Equity 1) What is the cost of debt? 2) What is the cost of equity use both CAPM and the Dividend Model? 3) What is the WACC for Equity you can use either answer above or an average? PART 2 Capital Budget If SSC is deciding upon whether to approve a capital project and the cash flows are as follows: Year 0 (initial investment) $2,000 Year 1 Cash Flow $1,000 Year 2 Cash Flow $600 Year 3 Cash Flow $400 Year 4 Cash Flow $4,000 Calculate: 1) Net Present Value (NPV) ____________________________ 2) Internal Rate of Return (IRR) ____________________________ 3) Payback Period ____________________________ Remember to use the WACC from above for the NPV and to compare to the IRR. Should this project be approved and why or why not?