Consider company XYT which has $1.2 billion of total assets, financed by $0.8 billion of debt and $0.4 billion of equity. Suppose that the debt comprises all XYT's short and long-term obligations. The costs of debt and equity, for XYT's creditors and shareholders, are equal to 8 and 14 percent, respectively. Compute XYT's Weighted Average Cost of Capital (WACC) on the assumption that the corporate tax rate (on profits) is zero percent. How would your answer in part (a) above change if the relevant corporate tax rate (on profits) is not zero but instead 40 percent? (*) Assume in your answer that XYZ has substantial profit available to it and is able to utilize its debt interest for tax-shield purposes fully. 8 Compute the net present value of an investment that requires outlay of $25,000 now, and generates a net cash flow return of $4,000 in exactly 12 months' time and $5,000 per year receivable every 12 months thereafter in perpetuity. Assume an investor discount rate of 5% per annum. Consider the following four projects: Project Investment outlay ($) NPV ($) P 800,000 95,000 400,000 50,000 R 500,000 75,000 S 1,400,000 140,000 NPV per $ of investment 0.118750 0.125000 0.150000 0.100000 Assume that projects P, Q, R and S are all infinitely divisible* and only $2,500,000 is available for investment. From any combination of the projects, and by fully utilizing all the $2.5 million available, what is the highest NPV achievable? Note that if a project is invested-in fractionally, the NPV is pro-rated (i.e., an investment in 10 per cent of Q generates an NPV of $5,000)