Kelso's has a debt-equity ratio of .62 and a tax rate of 21 percent. The firm does not issue preferred stock. The cost of equity is 16.3 percent and the aftertax cost of debt is 5.21 percent. What is the weighted average cost of capital?

10.96 percent

11.67 percent

12.06 percent

11.38 percent

11.57 percent

3

31

Panelli's is analyzing a project with an initial cost of $139,000 and cash inflows of $74,000 in Year 1 and $86,000 in Year 2. This project is an extension of current operations and thus is equally as risky as the current company. The company uses only debt and common stock to finance its operations and maintains a debt-equity ratio of .39 The aftertax cost of debt is 5.1 percent, the cost of equity is 13.2 percent, and the tax rate is 21 percent. What is the projected net present value of this project?

$411

$1,109

$1,807

$938

$2,399

4

41

Sister Pools sells outdoor swimming pools and currently has an aftertax cost of capital of 10.6 percent. Al's Construction builds and sells water features and fountains and has an aftertax cost of capital of 10.2 percent. Sister Pools is considering building and selling its own water features and fountains. The initial cash outlay for this project would be $75,000. The expected net cash inflows are $18,000 a year for seven years. What is the net present value of the Sister Pools project?

$4,608

$12,057

$2,262

$11,508

$5,220

5

51

Deep Hollow Markets has a target capital structure of 35 percent debt, 5 percent preferred stock, and 60 percent common stock. The flotation costs are 8.6 percent for common stock, 6.2 percent for preferred stock, and 3.8 percent for debt. The corporate tax rate is 21 percent. What is the weighted average flotation cost?

7.17 percent

6.48 percent

6.62 percent

6.80 percent

7.11 percent

6

61

You are evaluating a project that requires $324,000 in external financing. The flotation cost of equity is 8.4 percent and the flotation cost of debt is 5.1 percent. What is the initial cost of the project including the flotation costs if you maintain a debt-equity ratio of .35?

$352,842

$349,021

$350,439

$355,551

$346,646