Droz's Hiking Gear, Inc. has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent and the expected return on the market is 14 percent. It has 7-year semiannual maturity bonds outstanding with a price of $767.03 that have a coupon rate of 7 percent. The firm is financed with $140,000,000 of common shares (market value) and $60,000,000 of debt. Droz's, is subject to a 35 percent marginal tax rate. The management of Droz's, is considering an expansion project that costs $1.2 million. The project will produce a cash inflow of $600,000 for 5 years.

What is the fraction of each securities? (Round to the two decimal places.)

A)xdebt=0.7,xcs=0.3

B)xdebt=0.3,xcs=0.7

C)xdebt=0.4,xcs=0.6

D)xdebt=0.6,xcs=0.4

What is the pre-tax cost of debt? (Round to the nearest percent.)

A)12%B)8%C)6%D)16%

What is the cost of common equity? (Round to the nearest percent.)

A)11%B)13%C)15%D)17%

What is the WACC? (Round to the two decimal places.)

A)16.48%B)15.64%C)14.24%D)13.36%

What is the NPV of this project and should Droz's Hiking Gear, Inc. invest in this project? (Round to the nearest dollar.)

A)-$53,113, NoB)$848,023, YesC)$946,887, YesD)-$45,167, No