Your boss is considering an investment in new manufacturing

equipment. The equipment costs $270,000 and will provide annual

after-tax inflows of $45,000 at the end of each of the next 7 years.

The firm's market value debt/equity ratio is 25%, its cost of equity is

17%, and its pretax cost of debt is 9%. The firm's tax rate is 40%.

Assume the project is of approximately the same risk as the firm's

existing operations.

7) What is the weighted average cost of capital?

8) What is the NPV of the proposed project (Think about what is

appropriate discount rate)?

9) The company decides to increase its market value debt/equity ratio

to 30%. Assume that the cost of equity and the cost of debt stay the

same. What is the new weighted average cost of capital?

10) What is the NPV after the capital structure change?