10-14

You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 12.75%. The firm will not be issuing any new stock. What is its WACC? The NPV method is based on the assumption that projects' cash flows are reinvested at the project's risk-adjusted cost of capital. A basic rule in capital budgeting is that if a project's NPV exceeds its IRR, then the project should be accepted. The internal rate of return is that discount rate that equates the present value of the cash outflows (or costs) with the present value of the cash inflows. Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the project's 1RR? Note that a project's projected IRR can be less than the WACC (and even negative),in which case it will be rejected