Question No$.1$

Equity Information

$7$ billion shares, $=1\mathrm{.}37,$ Market risk premium $=10\mathrm{.}5\%,$ Risk$-$free rate $=6\mathrm{.}5\%$

Debt Information

$$3$ billion in outstanding debt $($face value$),$ Face value $=1300,$ Current Price $=850,$ Coupon rate $=$

$7\%,$ annually coupons, $8$ years to maturity, Tax rate $=19\%$

a$)$ Calculate the WACC.

b$)$ If the equity financing is decreased by $25\%$ and debt financing is increased by $15\%$ then find the

WACC. Furthermore what is the impact of increase in debt financing on WACC?

Question No$.2$

Company ABC is considering a project that will cost $$580,000.$ The project will generate future

cash flows $$310,000$ for $2$ years at the rate of $8\%.$ Value of Debt is $$9$ Billion and Equity is $$6$

Billion. The flotation cost for equity is $8\%,$ and the flotation cost for debt is $6\%.$ What is the NPV

for the project after adjusting the flotation costs? Will you accept or reject the project?

BEST OF LUCK

Question No$.1$

Equity Information

$7$ billion shares, Beta $=1\mathrm{.}37,$ Market risk premium $=10\mathrm{.}5\%,$ Risk$-$free rate $=6\mathrm{.}5\%$

Debt Information

$$3$ billion in outstanding debt $($face value$),$ Face value $=1300,$ Current Price $=850,$ Coupon rate $=$

$7\%,$ annually coupons, $8$ years to maturity, Tax rate $=19\%$

a$)$ Calculate the WACC.

b$)$ If the equity financing is decreased by $25\%$ and debt financing is increased by $15\%$ then find the

WACC. Furthermore what is the impact of increase in debt financing on WACC?

Question No$.2$

Company ABC is considering a project that will cost $$580,000.$ The project will generate future

cash flows $$310,000$ for $2$ years at the rate of $8\%.$ Value of Debt is $$9$ Billion and Equity is $$6$

Billion. The flotation cost for equity is $8\%,$ and the flotation cost for debt is $6\%.$ What is the NPV

for the project after adjusting the flotation costs? Will you accept or reject the project?