QUESTION 1

Data Computer Systems is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative), in which case it will be rejected.

Year	0	1	2	3
Cash flows	-$1,100	$450	$470	$490

		9.70%
		10.78%
		11.98%
		13.31%
		14.64%

QUESTION 2

Gul Corp. considers the following capital structure optimal: 40% debt; 50% equity; and 10% preferred stock. Guls bond currently sells in the market for $1150. The bond carries an annual coupon payment of 12 % of the face value which is paid in two semiannual payments. The bond will mature in 15 years and its face value is $1000. The bond's annual yield to maturity is 10.04%. The firms marginal tax rate is 40 percent. What is Gul's after-tax annual cost of debt?

	1.	10.04%
	2.	6.025%
	3.	cannot be determined without additional information
	4.	5.021%
	5.	2.41%