The NuPress Valet Co. has an improved version of its hotel stand. The investment cost is expected to be $72 million and will return $13.5 million for 5 years in net cash flows. The ratio of debt to equity is 1 to 1. The cost of equity is 13%, the cost of debt is 9%, and the tax rate is 34%. The appropriate discount rate, assuming average risk, is:

B) 9.47%

Explanation:

debt to equity ratio = 1

equity cost = 0.13

debt cost = 0.09

tax rate = 0.34

first we must calculate the debt to value and equity to value ratios:

debt to value = debt / (debt + equity) = 1 / (1 + 1) = 1 / 2 = 0.5

equity to value = equity / (debt + equity) = 1 / (1 + 1) = 1 / 2 = 0.5

the discount rate should be:

discount rate = (equity to value ratio x cost of equity) + [debt to value ratio x cost of debt x (1 - tax rate)] = (0.5 x 0.13) + [0.5 x 0.09 x (1 - 0.34)]

= 0.065 + 0.0297 = 0.0947 or 9.47%

answer; i do believe that the correct answer is (6) points in georgia;

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.