Question on Corporate Finance

1) The book value of Highland Group's outstanding debt is $60 million.Currently,the debt is trading at 120% of the book value and is priced to yield 12 percent.The 5 million outstanding shares of Highland Group stock are trading at $20 per share.The required return on Highland Group stock is 18 percent.The tax rate is 25 percent.

Calculate the weighted average cost of capital for Highland Group Ltd.

2)The best Samoan Manufacturer(Samoa Group Ltd) is considering a new investment.Financial projections for the investment are tabulated below.Cash flows are in $ thousands and the corporate tax rate is 34 percent.Assume all sales revenue is received in cash,all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year.

Yr Yr 1 Yr 2 Yr 3 Yr 4
Investment $10 000
Sales revenue $7000 $7000 $7000 $7000
Operating costs 2 000 2 000 2 000 2 000
Depreciation 2 500 2 500 2 500 2 500
Net working 200 250 300 200
Capital(End of year)

a)Compute the incremental net income of the investment for each year.
b)Compute the incremental cash flows of the investment for each year.
c)Suppose the appropriate discount rate is 12 percent.What is the Net Present Value(NPV) of the project?