The Campbell Company is a manufacture.
Their capital structure consists of

Long-Term debt, with an incremental borrowing rate of
8%

Capital stock, with the following information:
Risk free rate 6%
Market rate of return 13%
Beta 1.2

Long-Term debt 40% of total financing

Capital Stock 60% of total financing

The company’s tax rate is 40%

Required:

Using CAMP, compute the cost of equity financing
Compute the Weighted Average Cost of Capital

Analyze the following 4 independent projects:
Use NPV
IRR
Payback
To determine if the project should be accepted or rejected

IGNORE: Terminal cash flows & Working Capital Requirements.(use 7 year depreciation table)
Use 7 year depreciation table (tax-depreciation)

Project 1

Purchase of capital equipment for expansion
Capital expenditure 1,000,000
Useful life 8 years
Pre-tax Cash flows (not including depreciation)

Year Revenues Costs
1 250,000 100,000
2 262,500 105,000
3 275,625 110,250
4 289,406 115,763
5 303,877 121,551
6 319,070 127,628
7 335,024 134,010
8 351,775 140,710

2,387,277 954,911

Project 2

Purchase of capital equipment for expansion
Capital expenditure 500,000
Useful life 8 years
Pre-tax Cash flows (not including depreciation)

Year Revenues Costs
1 250,000 100,000
2 262,500 105,000
3 275,625 110,250
4 289,406 115,763
5 303,877 121,551
6 319,070 127,628
7 335,024 134,010
8 351,775 140,710

2,387,277 954,911

Project 3

Purchase of capital equipment for replacement
Capital expenditure 1,000,000
Useful life 8 years
Pre-tax Cash flows (not including depreciation)

Year Revenues Costs
1 200,000 –
2 210,000 –
3 220,500 –
4 231,525 –
5 243,101 –
6 255,256 –
7 268,019 –
8 281,420 –

1,909,822 –

Project…