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7. TAMU Inc. is evaluating a project which costs $225,000. Currently, TAMU has a beta of...

7. TAMU Inc. is evaluating a project which costs $225,000. Currently, TAMU has a beta of 1.5, the market is expected to have a 20% return and the risk-free rate is 5%. The forecasted free cash flows for the next 4 years for this project are $70,000 (FCF1), $100,000(FCF2), 0(FCF3), and $125,000 (FCF4). The project will cease to exist after that. TAMU has a debt/equity ratio of 2/3 and the applicable tax rate is 35%. The cost of debt (before taxes) can be calculated using TAMU’s currently issued bond which has a face value of $1000, yearly paid coupon rate of 10%, 20 years left to maturity and a current price of $1,196.36.

What is the cost of equity for TAMU Inc.?
       12.00%
       18.00%
       21.00%
       27.50%
Question 8. 8. Continued from Question 7, what is the pre-tax cost of debt (before taxes) for TAMU Inc.?
       9.76%
       8.00%
       11.65%
       7.50%
Question 9. 9. Continued from Question 7, what is TAMU’s WACC (after tax)?
       11.65%
       17.55%
       18.58%
       20.12%
Question 10. 10. Continued from Question 7, what is the NVP for this project?
       -$31,629
       -$15,184
       $14,446
       $28,170
Question 11. 11. Continued from Question 7, what is the IRR of the project?
       19.55%
       16.51%
       15.17%
       11.32%
Question 12. 12. Continued from Question 7, what is the MIRR of the project? Assuming that the positive cash inflow from undertaking this project will be reinvested at the after-tax weighted average cost of capital calculated in Question 9.
       14.17%
       17.28%
       19.78%
       20.86%
Question 13. 13. Assume that TAMU Inc. just paid a dividend of $2.50. The anticipated growth rate for the first 4 years is 10% and the company is expected to grow at 5% indefinitely after that. Using the cost of equity you previously found (in Question 7 ) as “k”, what should be the price of TAMU’s stock?
       $10.86
       $11.31
       $21.63
       $13.47

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