Corporate Finance - Corporate Finance Section 2
- Option : A
- Explanation : The crossover rate is the rate at which the NPVs of the projects are the same.
- Option : B
- Explanation : The vertical axis represents zero discount rate. The point at which the NPV profile crosses the vertical axis is simply the sum of undiscounted cash flows.
- Option : C
- Explanation : Wd = (D/E) / (1 + D/E) = 1 / (1 + 1) = 50% We = 1 - Wd = 50% WACC = Wd Rd (1 - t) + We Re WACC = 50% * 9% * (1 - 30%) + 50% * 12% = 9.15%
- Option : B
- Explanation : Wd = (D/E) / (1 + D/E) = 0.5 / (1 + 0.5) = 33.3% We = 1 - Wd = 66.7% WACC = Wd Rd (1 - t) + We Re WACC = 33.3%* 12%* (1 - 30%) + 66.7% * 19% = 15.47%.
- Option : C
- Explanation : Wd = (D/E) / (1 + D/E) = 0.5 / (1 + 0.5) = 33.3% We = 1 - Wd = 66.7% WACC = Wd Rd (1 - t) + We Re WACC = 33.3% * 11% * (1 - 35%) + 66.7% * 15% = 12.39%
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