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Finance problems

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Problem 9-2, "After-Tax Cost of Debt" from Chapter 9, page 371. Explain how cost of capital financing techniques affects the organization.
Problem 10-1, "NPV" from Chapter 10, page 414. Explain how to use capital budgeting and relevant cash flow to compare investment alternatives.
Problem 15-3, "Premium for Financial Risk" from Chapter 15, page 633. Explain how varying degrees of financial risk may command variations in shareholder return expectations.
Provide full documentation of the process used to reach the solution. Use information from the textbook to inform your analysis, incorporating creativity, critical thinking, and real-life perspectives.

Problem 9-2
LL Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 8%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL's after-tax cost of debt?

Problem 10-1
A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 12%. What is the project's NPV? (Hint: Begin by constructing a time line.)

Problem 15-3
Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a levered beta of 1.6. If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier's shareholders require to be compensated for financial risk?

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Solution Summary

The solution explains some finance questions relating to After-Tax Cost of Debt; Project's NPV; Ethier's shareholders financial risk