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# Question 7 : Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is...

-0.90

Beta of J Corp.'s stock = 2.0

Expected rate of return on J Corp. stock for the coming year = 14.10%

(I was able to get the first part of this question but the rest of it is confusing me and will need to know how to do this for my final. I tried to include as much information as possible as I'm not sure exactly what is needed)

Now that Anna has determined an appropriate rate of return for J Corp.'s stock, she must calculate the firm`s Weighted Average Cost of Capital. There are currently 51.5 million J Corp. common shares outstanding. Each share is currently priced at $7.69. As well, the firm has 5000 bonds outstanding and each bond has a face value of $10,000, a yield to maturity of 3.59% and a quoted price of $10,159.10. J Corp.'s tax rate is 30% J Corp. has no preferred shares outstanding.

**C) What is J Corp.'s WACC? (Rounding to one hundredth of a %)**

The land for the factory will cost $210,000. The factory will cost $5,910,000 to build and construction will take two years with construction costs payable in equal installments at the start of each year. The factory will operate for 20 years; however at the end of the fifth, tenth, and fifteenth year of operation, refurbishment costs will be $910,000. At the end of its 20 year lifespan, the land can be resold for $230,000. There is a 70% probability that the factory's net operating cash flows will be $1,246,901; however there is a 30% chance that net cash flows will only be $888,085. Assume that net operating cash flows flow at the end of each year.

**D) What are the expected net operating cash flows per year?**

**E) What is the Internal Rate of Return for the project?**

**F) What is the Net Present Value of the project?**

**G) Should Anna recommend that the J Corporation build the factory? Yes or No? **

Richard has just received an unexpected bonus at work worth $2,750 and, given the J Corp.'s reputation for excellent investment decision making, he will invest the entire bonus in J Corp. stock. Given the rates of return for stocks A, B, C, and D listed above and the rates of return for J.Corp stock and the market presented, as well as the cash amounts he is investing in stocks A, B, C, and D;

**H) What is the beta of Richard's portfolio?**

**I) Would you describe Richard's portfolio as aggressive, defensive, or neither of the two? **

**Thank you very much in advance. I'm not a finance student so I really need to study these in order to learn them and this is the only question I have left. **