Orange Ltd. is considering purchasing a new manufacturing plant that costs $500,000. The manufacturing plant will generate revenues of $150,000 per year for ten years. The operating costs needed to generate these revenues will total $75,000 per year. The manufacturing plant will be depreciated on a straight-line basis over ten years to zero. Orange Ltd.'s tax rate is 30 percent, and its cost of capital is 10 percent.

(a)What is the net present value of this project?

(b)Should the company approve this project? Explain why or why not. (Show all of your calculation).

Under what conditions is the WACC the appropriate discount rate for a project?

Assume that Orange Ltd. would like to raise $10,000,000 with a new issuing of bonds. Assume that the issue will have a coupon rate of 6% with a 3 year maturity. Assume this are monthly coupon bonds and each have a face value of $1.000 and the required rates of return for similar bonds in the market is 12%. What would be the issuing price of these bonds? How many bonds Orange Ltd. will have to issue?

Orange Ltd. has an outstanding loan of $90 million with a bank, and the interest rate on the loan is 5%. The company has also 100 million ordinary shares outstanding with a current price of $2.1 per share. The Beta of the ordinary share is 1.5, the market risk premium is 7.25% and the risk free rate is 2.5%. Orange Ltd. has a 30% corporate tax rate.

a) Compute Orange Ltd's weighted average cost of capital (WACC).

Steve Watson is interested in buying shares in Orange Ltd. which is growing at a constant rate of 5 per cent. Last year, the company paid a dividend of $4.25. The required rate of return is 16 per cent.

a) What is the current price for this share?

b) What would be the price of the share in year 6?