13.4 Using the WACC to Value a Project

8) A firm is considering investing in a new project with an upfront cost of $400 million. The project will generate an incremental free cash flow of $50 million in the first year and this cash flow is expected to grow at an annual rate of 3% forever. If the firm's WACC is 12%, what is the value of this project?

A) $155.6 million

B) $555.6 million

C) $583.3 million

D) $183.3 million

13.5 Project-Based Costs of Capital

9) Verano Inc. has two business divisionsa software product line and a waste water clean-up product line. The software business has a cost of equity capital of 10% and the waste water clean-up business has a cost of equity capital of 7%. Verano has 50% of its revenue from software and the rest from the waste water business. Verano is considering a purchase of another company in the waste water business using equity financing. What is the appropriate cost of capital to evaluate the business?

A) 10.0%

B) 7.0%

C) 8.5%

D) 9.0%

13.6 When Raising External Capital Is Costly

10) Assume Ford Motors expects a new hybrid-engine project to produce incremental cash flows of $50 million each year, and expects these to grow at 4% each year. The upfront project costs are $420 million and Ford's weighted average cost of capital is 9%. If the issuance costs for external finances are $20 million, what is the net present value (NPV) of the project?

A) $504 million

B) $560 million

C) $588 million

D) $616 million