how to get the I=3.31

Z Z FIN BOB Professor Dow Costo Capital Problem Set 1. A company has $100,000,000 of debt and $80,000,000 of equity. The cost of debt is 5% and the desired return to the the WACC for this company? 2. Dowco currently has 100.000 shares outstanding which sell for $55 per share. The expected vetum to its stock 7%. Docolo $20,000,000 worth of bonds outstanding which currently offer a yield to maturity of Bismarcal tax rate 33% Wat 16.05 VACO 3. Eastern Digital has 300,000 shares gostanding which sell for 10 per share. The extra visk associated with this stock suggests that the investor should get a return 5% greater than that being paid on its bonds. The company has 10,000 19-year bonds outstanding, the bonds have a coupon rate of 8% (coupons paid semiannually)a face value of $1,000 and currently sell for $1,100. The margjinak tartade for this company is 30%. What is this company's WACC? 4. (continued from question 3) Eastern Digital is planning on expanding its operations. Its initial 5. utlay would be $12m. The project would generate $2m per year over the next 10 years (starting at the beginning of next year). Is this project worthwhile? T-3.34 Yield of Maturity Tax Rate Answers 1.0.56*5% 0.448.5% = 6.54% 2.0.78*5.36% + 0.22*11% = 6.60% > Cost of Debt 21:20, 23.31, pv: -1,100, ptm: 40, fv: 1,000; yield = 6.62, cost of debt = 6.62*0.7 = 4.63 Cost of equity = 11.62; weights on equity and calculated at market prices. Cost of capital = 0.79*4.63 +0.21*11.62 = 6.10 1465 ntm: 2 fv: 0; NPV = 14.65 - 12 = 2.65, project is worth doing