Exercise 10-16 (Algo) Applying debt-to-equity ratio LO A2 Montclair Company is considering a project that will require a $620,000 loan. It presently has total liabilities of $160,000 and total assets of $680,000. 1. Compute Montclair's (a) current debt-to-equity ratio and (b) the debt-to-equity ratio assuming it borrows $620,000 to fund the project. 2. If Montclair borrows the funds, does its financing structure become more or less risky? 1. (a) 1. (b) 2. Choose Numerator: 1 Choose Denominator: 1 Debt-to-Equity Ratio 1 1 If Montclair borrows the funds, does its financing structure become more or less risky?

QS 11-17 (Algo) Net present value of annuity and salvage value LO P3 Pablo Company is considering buying a machine that will yield income of $3,100 and net cash flow of $14,700 per year for three years. The machine costs $45,900 and has an estimated $11,100 salvage value. Pablo requires a 10% return on its investments. Compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your present value factor to 4 decimals.) Years 1-3 Year 3 salvage Totals [Initial investment Net present value Net Cash Flows X PV Factor 14,700 x 11,100 x $ S = = Present Value of Net Cash Flows $ 0 0

Assignment: Chapter 11 Cost of Capital Attempts 2. An overview of a firm's cost of debt Keep the Highest/3 To calculate the after-tax cost of debt, multiply the before-tax cost of debt by Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% (2+T)od of four years. Its marginal federal-plus-state tax rate is 40%. TWC's after-tax cost of debt is (rounded to two decimal(1-T) At the present time, Three Waters Company (TWC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal- plus-state tax rate of 40%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to tw decimal places)? O4.22% O 3.80 % O 5.06% 4.85%

Domestic