Q3: Alfa corp has a capital structure which is based on 50% common stock, 20% preferred stock and 30% debt. The costof common stock is 14%, the cost of preferred stock is 8% and the pre-tax cost of debt is 10%. The firm's tax rate is 40%. (2marks)

a. Calculate the WACC of the firm.

b. The firm is considering a project that is equally as risky as the firm's current operations. This project has initial costs of $280,000 and annual cash inflows of $66,000, $320,000, and $133,000 over the next threeyears, respectively. What is the net present value of this project?

Answer

l

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