a)

A firm finances itself with 30 percent debt, 60 percent common equity, and 10 percent preferred stock. The before-tax cost of debt is 5 percent, the firm's cost of common equity is 15 percent, and that of preferred stock is 10 percent. The marginal tax rate is 30 percent. What is the firm's weighted average cost of capital?(9 marks)

QUESTION: What is the profitability index of an investment with cash flows in years 0 thru 4 of-340, 120, 130, 153, and 166, respectively, and a discount rate of 16 percent? Should the company accept this project using this criterion (profitability index). Explain your answer.

If the cash flows for project A are C0= -3,000, C1 = +500; C2= +1,500; and C3 = +5,000, calculate the NPV of the project using a 15 percent discount rate. Should the company accept this project using the NPV criterion. Explain your answer.