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

Solutions

Expert Solution

The project must be accepted

jeff jeffy answered 1 week ago

Next > < Previous

Related Solutions

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

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

A firm has the following capital structure: £240 million of equity (market value), trading at £2.4...

A firm has the following capital structure: £240 million of equity (market value), trading at £2.4 per share, and £160 million of debt. The beta of the firm’s stock is 1.5. The firm’s cost of equity is 10 percent, and the expected return on the market portfolio is 7 percent. There is no tax. Assuming that the firm can borrow at the risk free rate and that both CAPM (Capital Asset Pricing Model) and the Modigliani-Miller theorem hold, answer the...

Company has the following target capital structure, in market value terms: Debt 30% Preferred Stock 10% Common...

Company has the following target capital structure, in market value terms: Debt 30% Preferred Stock 10% Common Stock 60% In addition, you know the following: · At present the company’s debt is composed of $1,000 par bonds issued exactly three years ago, that pay a semiannual coupon, with a nominal annual rate of 7%, that have a ten-year maturity, and that are now selling for $1,150. · The company’s preferred stock is paying a $1.50 annual dividend and is currently selling...

Clark Explorers, Inc., an engineering firm, has the following capital structure: LOADING... . Using market value...

Clark Explorers, Inc., an engineering firm, has the following capital structure: LOADING... . Using market value and book value (separately, of course), find the adjusted WACC for Clark Explorers at the following tax rates:a. 35% b. 25% c. 15% d. 5% a. What is the market value adjusted WACC for Clark Explorers at a tax rate of 35%? nothing% (Round to two decimal places.) q2. Grey's Pharmaceuticals has a new project that will require funding of $4.04.0 million. The...

1. how capital structure affects the value of a firm? 2. what are the Modigliani and...

1. how capital structure affects the value of a firm? 2. what are the Modigliani and Miller’s capital structure theories? 3 What have been the trends for dividend payments and stock buybacks (repurchases) over the past 25 years? 4 How do employee stock programs dilute the ownership of other stockholders? How do stock repurchases neutralize this effect? 5 What is rule 10b-18, what is its major provisions, and what is the goal of the rule? 6 Why is it important...

Adjusted WACC. Clark Explorers, Inc., an engineering firm, has the following capital structure: Equity Preferred Stock...

Adjusted WACC. Clark Explorers, Inc., an engineering firm, has the following capital structure: Equity Preferred Stock Debt Market Price $66.75 $192.68 $1045.55 Outstanding units 104,000 6,000 6,667 Book value $2,799,000 $1,125,000 $6,667,000 Cost of capital 15.74% 11.12% 9.1% Using market value and book value (separately, of course), find the adjusted WACC for Clark Explorers at the following tax rates: a. 40% b. 30% c. 15% d. 10% a. What is the market value adjusted WACC for Clark Explorers at a...

Adjusted WACC. Clark Explorers, Inc., an engineering firm, has the following capital structure: Equity Preferred Stock...

Adjusted WACC. Clark Explorers, Inc., an engineering firm, has the following capital structure: Equity Preferred Stock Debt Market Price $56.14 $101.55 $954.28 Outstanding units 120,000 14,000 5,825 Book value $3,305,000 $1,438,000 $5,825,000 Cost of capital 15.81% 12.01% 10.9% . Using market value and book value (separately, of course), find the adjusted WACC for Clark Explorers at the following tax rates: a.35% b.30% c.15% d.10%

1. The target capital structure for a firm is 40% common stock, 10% preferred stock and...

1. The target capital structure for a firm is 40% common stock, 10% preferred stock and 50% debt. If the cost of common equity is 18%, the cost of preferred stock is 10%, the before-tax cost of debt is 8%, and the firm’s tax rate is 35%. What is its weighted average cost of capital? Indicate the detailed steps on how to use a FINANCIAL CALCULATOR to solve the problems.

Sara's Cafe has the following capital structure: Bonds $450 million Preferred Stock $300 million Common stock...

Sara's Cafe has the following capital structure: Bonds $450 million Preferred Stock $300 million Common stock $500 million Retained Earnings $250 million The specific costs of capital are as followsl: Bonds 6.2% Preferred Stock 7.4% Common Stock 16.8% Retained Earnings 14.9% Calculate the WACC.

Using debt and preferred stock in the capital structure of a firm will _____. decrease business...

Using debt and preferred stock in the capital structure of a firm will _____. decrease business risk increase the book value of common stock increase the tax payable by the firm. increase financial risk decrease operating leverage

Subjects