Your friends and you have decided to invest in a one$-$year high$-$tech project that requires $$2,000,000$ investment.

The $$2$ mil will be used to buy a machine that costs $$2$ mil.

Your friends and you will come up with equity of $$1,200,000,$ and borrow the rest to buy the machine.

The machine will be depreciated over a ten$-$year useful life. Use straight$-$line depreciation method.

Salvage value after one year is assumed to be equal net book value.

The sales revenue expected at the end of year one is $$5$ mil. The expenses related to wages, raw materials, utilities and rentals are $$2\mathrm{.}2$ mil. The corporate tax rate is $20\%.$

Assumptions:

All accounts where relevant are in cash $($no adjustments for changes in net working capital$).$ The required return on equity is $16\%.$ Interest rate on borrowing is $8\%.$

Your firm decides to start the project.

There is only one project for your firm.

Value of an asset, unless otherwise stated, is taken to be as of $$today$.$

What is the free cash flow to equity at the end of the first year?

Group of answer choices

$$2,908,000\mathrm{.}00$

$$3,168,010\mathrm{.}78$

$$3,228,800\mathrm{.}00$

$$3,208,000\mathrm{.}00$

$$4,289,142\mathrm{.}34$

$2.$ What is the value of common equity?

Group of answer choices

$$3,093,043\mathrm{.}48$

$$2,650,434\mathrm{.}78$

$$3,124,992\mathrm{.}96$

$$2,783,448\mathrm{.}28$

$$2,963,478\mathrm{.}263.$

$3.$ What is the value of debt?

Group of answer choices

$$880,000\mathrm{.}00$

$$800,000\mathrm{.}00$

$$500,000\mathrm{.}00$

$$740,000\mathrm{.}00$

$$600,000\mathrm{.}00$

$4.$ What is the weighted average cost of capital?

Group of answer choices

$13\mathrm{.}43\%$

$13\mathrm{.}86\%$

$13\mathrm{.}66\%$

$13\mathrm{.}09\%$

$12\mathrm{.}86\%$

$5.$ What is the value of the project to your firm $($$$)?$

Group of answer choices

$2,958,560\mathrm{.}37$

$3,583,448\mathrm{.}28$

$3,503,743\mathrm{.}48$

$2,858,337\mathrm{.}88$

$3,383,468\mathrm{.}16$

$6.$ What is the value of your firm $($$$)?$

Group of answer choices

$3,769,488\mathrm{.}26$

$3,998,038\mathrm{.}48$

$3,583,448\mathrm{.}28$

$4,021,993\mathrm{.}04$

$3,695,669\mathrm{.}87$

$7.$ What is the incremental gain in the value to the shareholders, i$.$e$.,$ the NPV $($$$)?$

Group of answer choices

$1,383,472\mathrm{.}26$

$1,583,448\mathrm{.}3$

$1,893,043\mathrm{.}48$

$1,720,893\mathrm{.}04$

$1,652,664\mathrm{.}87$

$8.$ Calculate the cash Flow for discounting by WACC.

Group of answer choices

$4,080,000$

$3,916,388$

$3,978,000$

$4,240,000$

$4,112,458$

$9.$ Mortgage pass$-$through securities collateralized by fixed$-$rate mortgages are subject to contraction risk under which of the following interest rate environment?

Group of answer choices

Market interest rates are declining.

Market interest rates do not change at all.

Market interest rates are increasing.

$10.$ What would be the spot price today if a stock futures price were $85,$ the risk$-$free rate were $8$ percent, and dividend on expiration is $$3?$ The futures contract expires in three months? Risk$-$free rate in geometric rate.

Group of answer choices

$$79\mathrm{.}19$

$$82\mathrm{.}48$

$$84\mathrm{.}60$

$$86\mathrm{.}32$