Bama Tide Inc. typically uses debt as their main source of funding and typically only finances with 30% equity. The firm’s after-tax cost of debt has been estimated to be 9% while their after-tax cost of equity is estimated at 14%. If the firm faces a 40% tax rate, what is their WACC? (4)

Georgia Dog Inc. typically uses equity as their main source of funding and typically only finances with 20% debt. The firm’s before-tax cost of debt has been estimated to be 10% while their before-tax cost of equity is estimated at 22%. If the firm faces a 40% tax rate, what is their WACC? (4)

Houston Technology’s beta is estimated to be 1.4. The firm’s stock is expected to pay a dividend of $5 at the end of this year and is currently selling for $65. The S&P 500 is currently returning 14%. If the firm expects constant growth in the future of 8%, what is the firm’s after-tax cost of equity? Assume a tax rate of 40%. (6)

Find the IRR for the following project if the firm’s WACC is 8%. (6) Year Cash Flow 0 -9000 1 4,000 2 5,000 3 6,000 4 2,000  

Project A has a NPV of $50,000 and an IRR of 12% while Project B has a NPV of $40,000 and IRR of 16%. Assume the firm has enough funds to pursue both projects, the firm has a WACC of 10%, and that the projects are mutually exclusive. Which project(s) should be pursued? (2)

When WACC = IRR, what is true about NPV? (Warning: SUPER HARD!!! Remember what WACC represents and what IRR represents) (2)

Which of the following projects should be accepted if a firm has a capital budget of $4,000 and a WACC of 5%? (2)  

Firms typically have ______ over their amount of operating leverage since it is largely determined by a firm’s ______. (2)

Which of the following is the ultimate decision rule? (2)

Operating leverage is caused by a firm using ______ since this causes a ______ cost. (2)