TWO-PART PROBLEM - Thank youu!!

4. What is the weighted average cost of capital for a firm which has a debt-to-equity ratio of 3:1 and a beta of 2.5. The risk free rate is 4.5% and the market risk premium is 8.5%; the tax rate is your age in years (i.e. my tax rate is 58%). 5. Using the value calculated in Problem 4, determine if the following is a good idea: Your company has an existing manufacturing program for a stable product line (reference and complete the Excel file called Exam 2-Problem 5). The process is relatively stable but you think there is room for improvement. Based on what you have learned from the gifted faculty at Northeastern University, you boldly state that, for $1,200,000 in capital equipment plus another $200,000 for R&D, you could improve 2 process steps 15% each (you choose which ones) and that this would recover the capital equipment expense in less than 12 months. Is this possible? The expected monthly volumes are: Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 12,000 12,000 12,000 13,000 13,000 13,000 12,000 12,000 12,000 13,000 13,000 13,000 You will finance everything except R&D, which has is own internal funding. Your company's policy for profit is 45% on sell price. What are you going to recommend? Depending on your results, are there any other alternatives for you to consider? Provide a comprehensive solution to prove or disprove your assertion. I expect to see calculations..... meaning ones relevant to what you have been learning lately. Answers without showing how you got them will not be counted. Here's some more information and advice which you may find useful: Financing is 9.0% annual rate; you will be financing over 12 months for simplicity (yeah, I know this sounds loan-sharkish but just go with it) Manufacturing equipment, such as what you are recommending, typically has a useful life of 5 years E = mc Your company policy for equipment it to depreciate to zero