Market Value Balance Sheet ($ Millions) and Cost of Capital:

Cash and other assets respectfully:

Assets= Cash and other assets respectfully 0 and 500

Liabilities = debt and quesity respectfully , 200 and 300

Cost of capital= debt and equity respectfully, 6% and 12%

c=35%

New year project free CF

free cashflows:

y0=(100$)

y1= $40

y2 +$50

y3=$60

Assume that this new project is of average risk for IP corporation and that the firm wants to hold constant its debt to equity ratio.

1. What will be the IP Corporations weighted average cost of capital ?
2. What will be the NPV for IP Corporation's new project?
3. Explain how a companys dividend policy is relevant to the valuation of its equity