1. What is the firms cost of debt?

Tax Rate of Firm= 30%

Firms Cost of Debt=70%

Coupon Rate of Bond=13%

Cost of Debt= Coupon rate of bond (1-tax rate) = 9.100%

2. What is the cost of preferred stock for Gracious Fashion?

Cost of Preferred Stock= Dividend/Current market price

$9.00/$110.00= 8.18%

3. Cost of common equity

(1) What is the estimated cost of common equity using the CAPM approach?

Cost of equity=Risk Free Return +Beta (Market return-risk free return)

Risk Free Return= 2.5%

Beta= 1.5

Market Return= 10.5%

Cost of equity= 2.5% +1.5 (10.5%-2.5%) = 14.5%

(2) What is the estimated cost of common equity using the DCF approach?

The firms stock is currently selling for $76.5 per share.

Its last dividend (D0) was $4, and dividends are expected to

grow at a constant rate of 8%. So D1 Dividend for next year will be ($4 * 1.08).

Cost of equity = (D1/ current market price) + Growth rate

D0 -$4*8%

D1 = 4.32

Current market price = $68.00

= (3.01/76.5) + 8%

= 3.93% +8%

= 14.35%

Estimated cost of common equity using the DC

approach is 14.35%

**(3) What is the estimated cost of common equity using the bond-yield-plus-risk-premium approach?

Bond Yield plus risk premium = Cost of Debt + Risk Premium

=13.6

(4) What is the final estimate for rs?

(14.5 + 14.35) / 2 = 14.43% = rs

4) What is Gracious Fashions overall WACC?

Weighted of debt= WD=.40; Weighted of Preferred equity=WPS=.10; Weighted of equity=WE=.50

WACC = WE x RE + WD x RD +WPS x RPS x (1-TC)

(.50 x .1443) + .4 x (.0910) + (.1 x .0818) x (1-.30)=

WACC=11.43%

5. Do you think the firm should use the single overall WACC as the hurdle rate for each of its projects? Explain.

The firm should not use the overall WACC. The WACC has not been adjusted for the varying degrees of riskiness of each project. Therefore, the WACC would not be a reliable number to use.

6. What is the WACC for each project? Place your numerical solutions in Table 2.

7. Calculate all relevant capital budgeting measures for each project, and place your numerical solutions in Table 2.

IRR formula in Excel to calculate percentages from cash flows.

Table 2

	A	B	C	D
WACC	9.18%	11.68%	14.18%	11.68%
NPV	$3,956,490	-$931,777	$1,024,126	$3,192,785
IRR	19%	9%	17%	21%
MIRR

8. Comment on the commonly used capital budgeting measures. What is the underlying cause of ranking conflicts? Which criterion is the best one, and why?

9. Which of the projects are unacceptable and why?

10. Rank the projects that are acceptable, according to Ambers criterion of choice.

11. Which project should Amber recommend and why? Explain why each of the projects not chosen was rejected.

Please help!! Stuck on questions 6-11 I need to show work but unsure of equations

Thank you!!