FM Foods, Inc. as of December 31,2012

Facts and Assumptions

Yield to maturity on long- term government bonds 4.4%

Yield to maturity on company long-term bonds 6.3%

Coupon rate on company long-term bonds 7.0%

Market prices of risk or excess return 6.5%

Estimated company equity beta 1.20%

Stook price per share $40.00

Number of shares outstanding 240.0 Million

Book value of equity $ 5,240 Million

Book value of equity Book value of interest- bearing debt $1,250 million

Tax rate 35.0%

1. Estimate FM's after-tax cost of equity capital.

2. Estimate FM's after-tax cost of debt capital.

3. Estimate the appropriate weight of equity to be used when calculating FM's weighted average cost of capital. Estimate the appropriate weight of debt to be used when calculating FM's weighted average cost of capital. Estimate FM's weighted-average cost of capital.

4. FM is contemplating an average-risk investment costing $100 million with an expected NPV of $33.1 million and IRR of 15%.

Based on this information, should FM accept the project based on the projects NPV and IRR? Explain your answer.