MACRO-1. NPV Valuation The Yurdone Corporation wan

Let's break down your questions one by one. 1. NPV Valuation for Yurdone Corporation: a) To determine if the cemetery business should be started, we need to calculate the Net Present Value (NPV) of the project. The formula for NPV when cash flows grow at a constant rate is:

NPV = \frac{C}{r - g} - I

Where: -

C

= cash inflow in the first year = 315,000 - \(r\) = required return = 11% or 0.11 - \(g\) = growth rate = 4.5% or 0.045 - \(I\) = initial investment = 4,100,000 Plugging in the values:

NPV = \frac{315,000}{0.11 - 0.045} - 4,100,000

Calculate the NPV and if it's positive, the project should be started. b) To find the break-even growth rate, set NPV to zero and solve for

g

:

0 = \frac{315,000}{0.11 - g} - 4,100,000

Rearranging gives:

\frac{315,000}{0.11 - g} = 4,100,000

Solve for

g

to find the growth rate at which the company breaks even. 2. Expected Rate of Return for a Security: Using the Capital Asset Pricing Model (CAPM):

E(R) = R_f + \beta (E(R_m) - R_f)

Where: -

R_f

= risk-free rate = 4.3% -

E(R_m)

= expected return on the market = 11% -

\beta

= correlation with the market portfolio = 0.45 (but you need the beta, which can be calculated using the correlation and standard deviations) If you have the beta, plug it into the formula to find the expected return. 3. Cost of Equity Capital for Dybvig Corporation: Again, using CAPM:

E(R) = R_f + \beta (E(R_m) - R_f)

Plugging in the values:

E(R) = 3.8\% + 1.17(11\% - 3.8\%)

Calculate this to find Dybvig's cost of equity capital. 4. Cost of Debt for Advance, Inc.: The pretax cost of debt can be calculated using the formula for the yield to maturity (YTM) of the bond. Given the bond is quoted at 95% of face value, you can use the following formula for semiannual payments:

YTM = \frac{C + \frac{(F - P)}{n}}{\frac{(F + P)}{2}}

Where: -

C

= semiannual coupon payment =

0.07 \times \text{Face Value} / 2

-

F

= face value (assume 1,000 for calculation) - \(P\) = price = 950 -

n

= number of periods = 13 years × 2 After calculating the YTM, the after-tax cost of debt is:

\text{After-tax cost of debt} = YTM \times (1 - \text{Tax Rate})

5. WACC for Mullineaux Corporation: The Weighted Average Cost of Capital (WACC) is calculated as:

WACC = \left( \frac{E}{V} \times r_e \right) + \left( \frac{D}{V} \times r_d \times (1 - T) \right)

Where: -

E

= market value of equity -

D

= market value of debt -

V

=

E + D

-

r_e

= cost of equity = 11.5% -

r_d

= cost of debt = 5.9% -

T

= tax rate = 35% Substitute the values based on the capital structure (70% equity, 30% debt) to find WACC. 6. WACC for Miller Manufacturing: Similar to the previous WACC calculation, use the target debt-equity ratio to find the proportions of debt and equity, then apply the WACC formula with the given costs of equity and debt. If you need help with any specific calculations or further explanations, feel free to ask!

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