Question: 1. Using the information given in Exhibit A, compute Longwoods WACC. Assume Longwood has no preferred stock. Should the company continue to use its historic

1. Using the information given in Exhibit A, compute Longwoods WACC. Assume Longwood has no preferred stock. Should the company continue to use its historic hurdle rate, yes or no? Support your answer.

2. Using the information from question 1, compute the projects NPV and IRR. Based on these measures, should Jimmy proceed with the project?

Exhibit A: Cost of capital information Interest Rates: January 2018 Government Bonds Market Risk Premium 1-year 3.5% Historical Average 6.0% Corporate Bond Information Par Value $1,000 Market Value $986 Coupon Rate 5.0% Average Life 12 years Longwood Financial Data Balance Sheet (in millions) Other Information Long-term Debt 2,500 Beta Common Equity 500 Retained Earnings 2,000 1.10 Per-share Data Shares outstanding Book Value per share Recent Share Price 500 million $5.00 $24

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