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Short Paper Part 1 
1) Calculate the WACC
We are told:
Weights of 30% debt and 70% common equity (no preferred equity)
A 35% tax rate
The cost of debt is now 9% 
The beta of the company is 1.2
The risk free rate is 2%
The return on the market is 12%
First calculate the expected cost of equity determined using the CAPM: 
CAPM = Risk Free Rate + Equity Beta * Market Risk Premium
market risk premium = Return on Market – Risk free rate
CAPM = Rrf + (beta*(retrurn on market – Rrf)
Next calculate the WACC of the firm:
WACC = (Weight Debt * Cost of Debt) + (Weight Equity * Cost of Equity )
Cost of debt*(1-Tax rate)
Part 2
Initial investment outlay of $60 million, comprised of $50 million for machinery with $10 million for net working capital (metal and gemstone inventory)
Project and equipment life is 5 years
Revenues are expected to increase $50 million annually
Gross margin percentage is 60% (not including depreciation)
Depreciation is computed at the straight-line rate for tax purposes
Selling, general, and administrative expenses are 5% of sales
Tax rate is 30%
Compute net present value and internal rate of return of the project
Revenues505050505050 M per year
Gross Margin303030303060% of revenues
Sales & Admin2. of revenues
Depreciation505050505050 million over 5 years
NWC Increase-1010 million out year 0
NWC Recovery1010 million recovered end of project
Capital Expenditures-6050 million 
FCF-7034.2534.2534.2534.2544.25FCF=((Gross Margin-Sales&Admin)*(1-tax rate))+(Depreciation*tax rate)-NWC Increase – Capex + NWC recovery at end of project
Discount Rate26.60%
NPVUse NPV Formula  = CFo + (NPV(WACC,FCF1,FCF2,FCF3,FCF4,FCF5)22.24   
IRR Use IRR formula  =IRR(Cfo:Cf5)41% 
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