Timmy?s Inc. has the following optimal capital structure: 25% debt,10% preferred stock, and 65% common equity. Its tax rate is 40%. Bonds outstanding are currently selling for 949.67. They mature in 7 years, pay an annual coupon of 8% and have a face value of $1,000. The current dividend on common stock is $4; dividends are expected to grow at 3%, and the stock is currently selling for $32. The current market price of preferred is $64. And the preferred dividend is $8. What is Timmy Inc?s WACC? Show your work. (10 points)

2. Two projects being considered are mutually exclusive and have the following cash flows:

Year Project A Project B

0 ?$100,000 ?$100,000

1 800,000 100,000

2 600,000 200,000

3 400,000 400,000

4 200,000 600,000

5 100,000 800,000

If the required rate of return on these projects is 10 percent, which would be chosen and why? Compute NPV, IRR, MIRR, traditional and discounted payback period. Find the crossover rate. (10 points)

3. Read ?A Refresher on Cost of Capital? https://hbr.org/2015/04/a-refresher-on-cost-of-capital .

According to the author, what are the main mistakes people make when using the cost of capital? (3 points).

4. GreenTrees Corporation currently has $60 million in liabilities and common equity in combination. There are no preferred stock. The CFO constructed the following table to show the effect of changing the firm?s capital structure:

Amount of Debt in the Capital Structure ($)	Earnings per Share(EPS) ($)	Market Price per Share (Po) ($)
20,000,000	5.0	125.5
30,000,000	5.5	130.75
40,000,000	5.7	130

Using this information, what is GreenTrees optimal capital structure? Explain your answer. (7 points).

BSAD- 352 M4 Corporate Finance Instructor Adriana Valcu-Lisman Name_____________________________ Homework no. 5 Due April 28th 2013 1.Timmy's Inc. has the following optimal capital structure: 25% debt,10% preferred stock, and 65% common equity. Its tax rate is 40%. Bonds outstanding are currently selling for 949.67. They mature in 7 years, pay an annual coupon of 8% and have a face value of $1,000. The current dividend on common stock is $4; dividends are expected to grow at 3%, and the stock is currently selling for $32. The current market price of preferred is $64. And the preferred dividend is $8. What is Timmy Inc's WACC? Show your work. (10 points) 2. Two projects being considered are mutually exclusive and have the following cash flows: Year 0 1 2 3 4 5 Project A $100,000 800,000 600,000 400,000 200,000 100,000 Project B $100,000 100,000 200,000 400,000 600,000 800,000 If the required rate of return on these projects is 10 percent, which would be chosen and why? Compute NPV, IRR, MIRR, traditional and discounted payback period. Find the crossover rate. (10 points) 3. Read \"A Refresher on Cost of Capital\" https://hbr.org/2015/04/a-refresher-on-cost-of-capital . According to the author, what are the main mistakes people make when using the cost of capital? (3 points). 4. GreenTrees Corporation currently has $60 million in liabilities and common equity in combination. There are no preferred stock. The CFO constructed the following table to show the effect of changing the firm's capital structure: Amount of Debt in the Capital Structure ($) 20,000,000 30,000,000 40,000,000 Earnings per Share(EPS) ($) 5.0 5.5 5.7 Market Price per Share (Po) ($) 125.5 130.75 130 Using this information, what is GreenTrees optimal capital structure? Explain your answer. (7 points)