HELP WITH 3.b.

1.A. ABC plans to finance the capital project next year by issuing $50 million of 11% semi-annual coupon rate bonds, with each bond having a maturity (par) value of $1,000 and 15-year maturity. After investment bank collects their underwriting fees. ABC will receive $960 for each bond. What is the cost of debt for ABC?

2.A. Assume BCD's beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.50%. What is BCD's required rate of return on equity? 2.B. BCDs last dividend, (Do) was 1.25, and BCD is expecting growth rate in earnings and dividends of 6.5% in the future (i.e g=0.065). What is the current price of common stock today (Po)?

3. The director of capital budgeting for a firm has identified two mutually exclusive projects with the following expected net cash flows. Expected Net-Cash Flows Year Project A Project B 0 -125 -125 1 85 20 2 65 70 3 20 90 Both projects have a cost of capital of 14%

3a. What are project As and Bs net present value (NPV) NPV for A= NPV for B=

3.b. What is the Profitability Index (PI) for both projects? Profitability index for A= Profitability index for B=

3.c. What is the internal Rate of Return?

3d. Based on findings, what should company do if both projects are independent to each other? Why? What if the projects are mutually exclusive?