1. Weighted Average Cost of Capital In order to fund your new project, you have gone...

Transcribed Image Text:

1. Weighted Average Cost of Capital In order to fund your new project, you have gone to the capital markets and raised the following: Stock $90 million at a rate of 8.5% Preferred 8tock = 30 million at a rate of 7% Bonds $70 million at a rate of 5% Calculate the weighted average cost of capital given a tax rate of 35%. Your new project required $100 million to initiate. It will achieve cash flow of $5 million at the end of the first year, $50 million at the end of the second year, and $75 million at the end of the third. Assume you calculated a weighted average cost of capital of 8 %. Your policy is that projects of this nature must pay for themselves by the end of the third year. Would you accept the project? 1. Weighted Average Cost of Capital In order to fund your new project, you have gone to the capital markets and raised the following: Stock $90 million at a rate of 8.5% Preferred 8tock = 30 million at a rate of 7% Bonds $70 million at a rate of 5% Calculate the weighted average cost of capital given a tax rate of 35%. Your new project required $100 million to initiate. It will achieve cash flow of $5 million at the end of the first year, $50 million at the end of the second year, and $75 million at the end of the third. Assume you calculated a weighted average cost of capital of 8 %. Your policy is that projects of this nature must pay for themselves by the end of the third year. Would you accept the project?