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Two companies, TimCo., Inc. and MitCo., Inc. have the identical cost for each individual element of their capital. Calculate the overall WACC for each company and analysis why there is a difference in the WACC.
TimCo, Inc. |
||
Type of Capital |
Book Value |
Cost |
Long-Term Debt |
$500,000 |
6.20% |
Common Stock Equity |
$400,000 |
15.00% |
Preferred Stock |
$75,000 |
13.00% |
MitCo, Inc. |
||
Type of Capital |
Book Value |
Cost |
Long-Term Debt |
$450,000 |
6.20% |
Common Stock Equity |
$500,000 |
15.00% |
Preferred Stock |
$60,000 |
13.00% |
Calculate the payback period, NPV, and IRR for a firm with a 9% cost of capital on a project costing $125,000 with a six-year life based on the following information:
Year |
Cash Inflow |
1 |
$35,000 |
2 |
$30,000 |
3 |
$32,000 |
4 |
$25,000 |
5 |
$22,000 |
6 |
$20,000 |
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