Question

Problem 12-1 The Glendale Corp. is considering a real estate development project that will cost $5 million to undertake and is expected to produce annual inflows between $1 million and $4 million for two years. Management feels that if the project turns out really well the inflows will be $3 million in the first year and $4 million in the second. If things go very poorly, on the other hand, inflows of $1 million followed by $2.5 million are more likely. Develop a range of NPVs for the project if Glendale's cost of capital is 6%. Round the answers to the nearest dollar. NPV for the good scenario. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. $ ____ NPV for the unfavorable scenario. Use a minus sign to indicate a negative NPV. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. $

_________________________________________

Problem 12-2

The Glendale Corp. is considering a real estate development project that will cost $5 million to undertake and is expected to produce annual inflows between $1 million and $4 million for two years. Management feels that if the project turns out really well the inflows will be $3 million in the first year and $4 million in the second. If things go very poorly, on the other hand, inflows of $1 million followed by $2.5 million are more likely. Glendale's cost of capital is 10%. If Glendale's management attaches a probability of .7 to the better outcome, what is the project's most likely (expected) NPV? Round the answer to the nearest dollar. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. $ ____

____________________________________________________

The Aztec Corporation has the following capital components and costs. Calculate Aztec's WACC. Round the answer to two decimal places of percentage. Do not round your intermediate calculations.

Component		Value		Cost
Debt		$23625		12.0%
Preferred Stock		4350		15.0
Common Equity		52275		20.5

____%

____________________________________________

Asbury Corp. issued 30-year bonds 11 years ago with a coupon rate of 9.5%. Those bonds are now selling to yield 7%. The firm also issued some 20-year bonds 2 years ago with an 8.9% coupon rate. The two bond issues are rated equally by Standard and Poors and Moody's. Asbury's marginal tax rate is 34%. Assume face value of the bonds is $1,000. Assume that the coupon payments are semi-annual.

1. What is Asbury's after-tax cost of debt? Round the answer to two decimal places.
   _____%
   
2. What is the current selling price of the 20-year bonds? Round the answer to the nearest cent.
   $ ______

Answer 1

(According to the Chegg policy we are allowed to answer only three subparts. So, I am answering the first three questions below according to the policy. Thanks)

Problem 12-1 Solution:

Good Scenario
Cost of Capital =	6%
Period	0	1	2
Cost	-5000000
Inflows		3000000	4000000
Net Cashflows	-5000000	3000000	4000000
Present Value of the Cash flows	-5000000/(1.06)^0	3000000/(1.06)^1	4000000/(1.06)^2
Present Value of the Cash flows	-5000000	2830188.679	3559985.76
Net Present Value = Sum of present value of the cash flows	1390174.439
Unfavorable Scenario
Cost of Capital =	6%
Period	0	1	2
Cost	-5000000
Inflows		1000000	2500000
Net Cashflows	-5000000	1000000	2500000
Present Value of the Cash flows	-5000000/(1.06)^0	1000000/(1.06)^1	2500000/(1.06)^2
Present Value of the Cash flows	-5000000	943396.2264	2224991.1
Net Present Value = Sum of present value of the cash flows	-1831612.674

NPV for the good scenario = 1,390,174
NPV for the unfavorable scenario = -1,831,613

Problem 12-2 Solution:

GOOD SCENARIO
Cost of Capital =	10%
Period	0	1	2
Cost	-5000000
Inflows		3000000	4000000
Net Cashflows	-5000000	3000000	4000000
Present Value of the Cash flows	-5000000/(1.1)^0	3000000/(1.1)^1	4000000/(1.1)^2
Present Value of the Cash flows	-5000000	2727272.727	3305785.124
Net Present Value = Sum of present value of the cash flows	1033057.851
Unfavorable Scenario
Cost of Capital =	10%
Period	0	1	2
Cost	-5000000
Inflows		1000000	2500000
Net Cashflows	-5000000	1000000	2500000
Present Value of the Cash flows	-5000000/(1.1)^0	1000000/(1.1)^1	2500000/(1.1)^2
Present Value of the Cash flows	-5000000	909090.9091	2066115.702
Net Present Value = Sum of present value of the cash flows	-2024793.388

Glendale's management attaches a probability of .7 to the better outcome,
So, the probability of unfavorable Scenario is 1-0.7 = 0.3
Project's most likely (expected) NPV = 0.7* 1033057.851 + 0.3*(-2024793.388)
Project's most likely (expected) NPV =115702.4793

Project's most likely (expected) NPV =115,702

Problem 12-3 Solution:

WACC = Weight of debt * After tax cost of debt + Weight of Preferred Stock * Cost of Preferred Stock + Weight of Common stock * cost of common stock

Total value of debt , preferred stock and common stock = 23625+4350+52275 = 80250

Weight of debt = 23625/80250 = 0.294
Weight of Preferred Stock = 4350/80250 = 0.0542
Weight of Common stock = 52275/80250 = 0.6514

WACC = 0.294 * 12 + 0.0542 * 15 + 0.6514 * 20.5 = 17.6947%

Aztec's WACC = 17.69