(4) Using the average of the three measures of the common stock cost of capital from

Part 3 as the cost of common stock, calculate the weighted average cost of capital

(WACC).

(5) Calculate the internal rate of return (IRR) and the net present value (NPV) of the

project as follows:

IRR:

NPV:

(6) Decide whether to accept or reject the project.

0 1 2 3 WACC=? H + -100 80 50 30 Tax rate = 40% Capital structure Book value 58% Market value 30% Debt Preferred Stock Common Stock Target structure 60% 8% 32% 2% 40% 10% 60% Debt: Face value at $1,000; 10 years of maturity; 10% semiannual coupons; price $885.30; no addition cost of new debt issuance. Preferred stock: $10 annual dividend per share; price $111.10. Common stock: Price $42; dividend payout (Do) at $4 per share; steady growth of net profits expected at 5% per year Beta at 1.3; risk-free rate (rf) at 8%; market risk premium at 6% For illiquid (infrequently traded) stocks, 3-5% bond-yield risk premium is added to the long-term bond yield