Question #1 (13 Marks) ABC Company is considering expanding operations into a new market. This expansion will require an investment of $8 million and it is expected that it will earn the company a return of 17%. The company requires financing to fund this expansion and is planning to obtain it from the following sources: The treasurer of ABC Company has already calculated and finalized the following cost information, but needs you to complete all necessary work to determine if this expansion investment should be made. Cost data already properly determined: The cost of retained earnings financing is 19% The cost of preferred share financing is 12% Additional information provided: The stated rate of interest regarding the long-term borrowings is 10%. The common shares will be issued at a market price of $60 per share and it is anticipated that they will yield an annual dividend of $9 per share. The company will also incur issuance costs (ie. flotation costs) of $6 per share. ABC Company has an annual growth rate is 4%. The income tax rate for the company is 35% Required: 1.) Calculate the cost of (a) long-term borrowings financing as a %, and (b) common share financing as a %. (Round your final answers as a % to 2 decimals places and show all work) (5 marks) 2.) Calculate the weighted average cost of capital (WACC) for the expansion investment as a %. (6 marks) (Use the worksheet table provided in the answer working papers.) (Round all calculated %s to 2 decimal places.) 3.) Based on your answer in requirement 2, should the expansion investment be made? Briefly explain why. (2 marks) PROVIDE YOUR ANSWERS ON YOUR SEPARATE ANSWER PAGES Question #2 (7 Marks) Ms. Gaga would like to provide the following future cash payments to her daughter: $6,000 each year for the next 4 years beginning one year from today to help her pay for her college education. Also, Ms. Gaga would like to give her daughter an additional $10,000, 3 years from today so her daughter can take a vacation, and another $20,000, 5 years from today so her daughter can make a down-payment on a house. Required: What is the total minimum amount that Ms. Gaga needs to invest today so that she will have the future funds available to make the planned payments to her daughter? Assume Ms. Gaga can earn 9% on his investment. (Round all calculated amounts to the nearest dollar). **Note: Where applicable, marks are awarded for calculating your answer efficiently. PROVIDE YOUR ANSWERS ON YOUR SEPARATE ANSWER PAGES Question #3 (13 Marks) MLB Ltd. is considering two potential asset investments, Asset X and Asset Y. Each asset has an initial purchase cost of $14,500 and a useful life of four years. MLB Ltd. has a minimum required rate of return of 6% for all asset investments. The projected annual net cash inflows from each investment is as follows:

Required: 1.) Calculate the Payback Period (PBP) for each of: (a) Asset X (b) Asset Y ** Marks are awarded for calculating your answers efficiently, where applicable. (Round your answers to 2 decimal places) (5 marks)

2.) Calculate the Net Present Value (NPV) for each of: (a) Asset X (b) Asset Y ** Marks are awarded for calculating your answers efficiently, where applicable. (Round all dollar amounts to the nearest dollar) (7 marks) 3.) Based on your answers in requirement 2, if only one asset is to be purchased, which asset should be purchased? (1 mark)