Golden State Home Health, Inc., is a large, California ­based for­profit home health agency

13.7) Golden State Home Health, Inc., is a large, California ­based for­profit home health agency. Itsdividends are expected to grow at a constant rate of 5 percent per year into the foreseeable future. Thefirm’s last dividend (D(0)) was $1, and its current stock prices is $10. The firm’s beta coefficient is 1.2;the rate of return on 20 year T­bonds currently is 8 percent; and the expected rate of return on themarket, as reported by a large financial services firm, is 14 percent. Golden State’s target capitalstructure class for 60 percent debt financing, the interest rate required on its new debt is 9 percent, andthe firm’s tax rate is 30 percent.a. What is the firm’s cost­of­equity estimate according to the DCF method?b. What is the cost­of­equity estimate according to the CAPM?c. On the basis of your answers to parts a and b, what would be your final estimate for thefirm’s cost of equity?d. What is your estimate for the firm’s corporate cost of capital?14.8) You have been asked by the president and CEO of Kidd Pharmaceuticals to evaluate the proposedacquisition of a new labeling machine for one of the firm’s production lines. The machine’s price is$50,000, and it would cost another $10,000 for transportation and installation. The machine falls into theMACRS three­year class, and hence the tax depreciation allowances are 0.33, 0.45, and 0.15 in years 1,2, and 3, respectively. The machine would be sold after three years because the production line is beingclosed at that time. The best estimate of the machines salvage value after three years of use is $20,000.The machine would have no effect on the firm’s sales or revenues, but it is expected to save Kidd$20,000 per year in before­tax operating costs. The firm’s tax rate is 40 percent and its corporate cost ofcapital is 10 percent.a.b.c.d.What is the project’s net investment outlay at Year 0?What are the project’s operating cash flows in year 1, 3, and 3?What are the terminal cash flows at the end of Year 3?If the project has average risk, is it expected to be profitable?