Hi, I will include the Excel worksheet and the link to the text I'm using (Ch 9, 10). Thank you
Brealey, R. A., Myers, S. C. & Allen, F. (2011). Principles of Corporate Finance, Concise Edition, (2nd ed.). New York, NY: McGrawHill Irwin.
Problem 92 

A company is 40% financed by riskfree debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the company’s common stock is .5. 






Risk Free Debt 
Interest Rate 
Market Risk Premium 
Beta 
Taxes 
40% 
10% 
8% 
0.5 
35% 





a. What is the company cost of capital? 



b. What is the aftertax WACC, assuming that the company pays tax at a 35% rate? 

Answers: 

Step 1: 

r(d)= 
F 

r(e)= 
C 

D/V 
C 
TIP: D + E = V 

E/V 
C 

Step 2: 

a. 

Formula (in words) 
Calculation 


Cost of Capital 
T 
C 

b. 
WACC 
T 
C 
Problem 916 

What types of firms need to estimate industry asset betas? How would such a firm make the estimate? Describe the process step by step. 

Answer: 

What types of firms need to estimate industry asset betas? 

T 

How would such a firm make the estimate? Describe the process step by step. 

T 

Problem 102 

Explain how each of the following actions or problems can distort or disrupt the capital budgeting process. a. Overoptimism by project sponsors. 

Answer: 

a. 
T 

b. 
T 

c. 
T 

Problem 1014 

Suppose that the expected variable costs of Otobai’s project are ¥33 billion a year and that fixed costs are zero. a. How does this change the degree of operating leverage (DOL)? b. Now recompute the operating leverage assuming that the entire ¥33 billion of costs are fixed. 

Answers: 

See page 243, Table 10.1, of textbook for additional information. Copy is also provided below. 


DOL Formula 
Fixed Costs 
Calculation 

a. 
1+(Fixed cost + depreciation)/ operating profit 
F 
C 



b. 
1+(Fixed cost + depreciation)/ operating profit 
F 
C 



Subject  Business 
Due By (Pacific Time)  05/03/2014 05:00 pm 
Tutor  Rating 

pallavi Chat Now! 
out of 1971 reviews More.. 
amosmm Chat Now! 
out of 766 reviews More.. 
PhyzKyd Chat Now! 
out of 1164 reviews More.. 
rajdeep77 Chat Now! 
out of 721 reviews More.. 
sctys Chat Now! 
out of 1600 reviews More.. 
sharadgreen Chat Now! 
out of 770 reviews More.. 
topnotcher Chat Now! 
out of 766 reviews More.. 
XXXIAO Chat Now! 
out of 680 reviews More.. 