# Cost of capital; Find NPV, IRR; which project to select

Problem 1

A firm has a capital structure which consists of 30% debt and 70% equity. The cost of debt is 10% and the cost of equity is 15%. Find the cost of capital if the firm's tax rate is 34%.

Problem 2

A firm is evaluating a project with the following cash flows:

Year0 = (100,000)

Year1 = 26,000

Year2 = 28,000

Year3 = 28,000

Year4 = 28,000

Year5 = 28,000

Year6 = 28,000

Year7 = 28,000

Year8 = 28,000

Year9 = 28,000

Year10 = 30,000

The cost of capital is 12%.

(a) Find NPV and IRR

(b) Evaluate the project using each of your answers to (a)

Problem 3

A firm has a cost of capital of 5% and is considering two mutually exclusive investment projects with the following cash flows:

Project A

Year 0 = (70,500)

Year 1 = 40,000

Year 2 = 30,000

Year 3 = 20,000

Year 4 = 10,000

Project B

Year 0 = (70,500)

Year 1 = 10,000

Year 2 = 20,000

Year 3 = 30,000

Year 4 = 50,000

(a) Find the IRR and NPV for each project

(b) Which project should the firm select? Why?

© BrainMass Inc. brainmass.com October 10, 2019, 1:45 am ad1c9bdddfhttps://brainmass.com/business/capital-budgeting/cost-of-capital-find-npv-irr-which-project-to-select-347618

#### Solution Summary

The solution calculate cost of capital and find NPV, IRR and decide which project should a firm select?