Chapter 9 Mini Case: Cost of Capital and Project Risk

1. Read the mini-case in Chapter 9 of your text and answer the following questions:Calculate the current weighted average cost of capital for CWC.
2. Calculate the appropriate discount rate for the healthy bottled water project.
3. Perform a sensitivity analysis for sales price, variable costs, fixed costs, and unit sales at +/- 10%, 20%, and 30% from the base case.
4. Perform an analysis of the following two scenarios:

• Best case: Selling 2,500,000 units at a price of $1.24 each, with variable production costs of $0.22 per unit.
• Worst case: Selling 950,000 units at a price of $1.32 per unit, with variable production costs of $0.27 per unit.

1. Explain if the firm should undertake the healthy bottled water project.

Remember to show all your work on any calculation.