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Weighted average cost of capital

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1. You are offered an investment with returns of $ 1,065 in year 1, $ 3,512 in year 2, and $ 3,077 in year 3. The investment will cost you $ 5,989 today. If the appropriate Cost of Capital (quoted interest rate) is 8.8 %, what is the Profitability Index of the investment?

2. A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity. Given the following information, calculate the firm's weighted average cost of capital. Cost of Debt = 5.8%, Tax rate = 40%, Current Stock Price = $25.10, Long Run Growth rate = 3.5%, Next Year's Dividend = $2.47.

Reference no: EM131725623

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