Reference no: EM132620864

Problem (1) The expected return on a firm's equity is 9%, and the firm has a yield to maturity on its debt of 5.6%. Debt accounts for 20%, common equity for 73% and preferred equity for 7% of the firm's total market value. If its tax rate is 30%, and the cost of preferred equity is 20%, what is this firm s WACC? Express your answers in strictly numerical terms. For example, if the answer is 5%, write 0.05"

Problem (2) Firm UVW has a face debt value of $20 Million USDs trading at 88% with a pre-tax weighted cost of 6%. Firm UVW's common equity for the year was valued at $50 Million of USDs and preferred equity for $6 Million of USDs. The Preferred equity rate was calculated to be 18%. However, the common equity was to be calculated using CAPM approach, with a 2.5% risk free rate and a 10% market risk premium rate, assuming a Beta of 1.03. If the tax rate is 30%, what is Firm UVW s WACC? Express your answers in strictly numerical terms. For example, if the answer is 5%, write 0.05"

Problem (3) Continue considering Firm UVW. Suppose Firm UVW is considering investing in a new project of urban development. The cost of the project is $8,000,000.00 of USD. Firm UVW expects that the non-incremental yearly cash flows from the project are $3,000,000.00 of USD for the next five years; e.g. that is $3,000,000.00 of USD each year. Using the calculated WACC in the previous question, what is the Net Present Value (NPV) of the project? Note: Express your answers in strictly numerical terms. For example, if the answer is five million dollars, write 5000000 as an answer."