Question: A-Use the table for the question(s) below. Consider the information for the following four firms: Firm Cash Debt Equity rD rE c Eenie $0 $150

A-Use the table for the question(s) below. Consider the information for the following four firms:

Firm Cash Debt Equity rD rE c
Eenie $0 $150 $150 5% 10% 21%
Meenie $0 $250 $750 6% 12% 21%
Minie $25 $175 $325 6% 11% 21%
Moe $50 $350 $150 7.50% 15% 21%

The weighted average cost of capital for "Minie" is closest to:

1-9.50%

2-6.75%

3-9.00%

4-8.25% ( This Option is Already Incorrect )

B-Use the information for the question(s) below. Omicron Industries' Market Value Balance Sheet ($ Millions) and Cost of Capital

Assets Liabilities Cost of Capital
Cash 0 Debt 200 Debt 6%
Other Assets 500 Equity 300 Equity 12%
c 21%

Omicron Industries' New Project Free Cash Flows (Millions)

Year 0 1 2 3
Free Cash Flows ($100) $40 $50 $60

Assume that this new project is of average risk for Omicron and that the firm wants to hold constant its debt to equity ratio. The NPV for Omicron's new project is closest to:

1-28.75 million

2-23.75 million ( This Option is Already Incorrect)

3-24.75 million

4-27.50 million

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!