Question: 3. How do you think the two projects will fair under Mr. Klein's new capital budgeting technique? a. Calculate each project's net present value (NPV)

3. How do you think the two projects will fair under Mr. Klein's new capital budgeting technique? a. Calculate each project's net present value (NPV) i. What is the right discount rate to use? [Worksheet 1: Discount rate] Using WACC formula: WACC=[E/(E+D)]*(Re)+[D/(E+D)]*(Rd)(1Te) E = market value of the firm's equity, D = market value of the firm's debt, Re = cost of equity, Rd = cost of debt, Tc =corporate tax rate, E/(E+D) = percentage of financing that is equity, D/(E+D) = percentage of financing that is debt. Assume corporate tax rate is 0%, and the cost of equity is 10% as Mr. Klein believed. According to the calculation of WACC, the appropriate discount rate is 8.1 1%

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