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A firm has the following capital structure: 1. Bonds with market value of $3,000,000 2. Preferred...

A firm has the following capital structure: 1. Bonds with market value of $3,000,000 2. Preferred Stock with a market value of $2,000,000 3. Common stock, of which 400,000 shares is outstanding. Presently, each common stock is selling at $30 per share The preferred stock price per share is $60 and pays a $5 dividend. Common stock shares sell for $30 and pay a $2 dividend. Dividends for common stock are expected to grow by 3%. Bond price is $950, and the bond coupon rate is 6.5%. The bonds mature in 7 years. The firm’s tax rate is 38%. The company has $3,500,000 in sales, and expenses of $1,200,000. The initial investment of $5,500,000 will be depreciated straight-line over 10 years. The project is expected to last 10 years. 1. What is the firm’s Weighted Average Cost of Capital (WACC)? _____________________ (Chapter 13) 2. What is the firm’s Operating Cash Flow (OCF)? ______________________ (Chapter 9) 3. Using the WACC is the NPV, using the WACC (use the answer from question 1 above), and OCF (use the answer from question 2 above)? ¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬______________________ (Chapter 8) 4. Based on your answer to question #3, would you accept or reject the project? Explain why? _______________________________________________________Chapter 8

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Expert Solution

The project must be accepted

jeff jeffy answered 7 months ago
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