8) Company XYZ is considering an investment opportunity in '11. The financials associated with this project for year 1 are: Sales 350,000 Expenses (Ex Dep) 265,000 Sales & Expenses are expected to increase by 2% per year after year 1 Fixed Asset (Investment) associated with this project are expected to cost 150,000 Fixed Assets will be depreciated via the 5 year MACRS. The project will be evaluated over 3 years The Company's tax bracket is: 40% The company intends to finance the project similar to the way they have financed projects historically. Pertinent data is as follows: Existing Capital Structure Bonds 50,000 P/S 150,000 C/S 300,000 Bond Market rate 10 Bond Market rate '11 (projected) 6.0% 7.0% Company believes they could issue Preferred Stock at a price: The dividend associated with this would be: Flotation costs would be: 22.00 1.50 2% of sales price 28.00 1% of sales price Company also believes they could issue Common Stock at a price: Flotation costs would be: Dividend will be based on historic growth. Dividend History is as follows: Dividend History Year 2008 2009 2010 Dividend 1.50 1.55 1.59 The Company's internal criteria are: - Payback within 3 years - Hurdle rate of Cost of Capital plus 5% Does the project pass the company's criteria for: Payback? Why? NPV? Why? What is the maximum hurdle rate that at which this project would be accepted? c)