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A firm has the following capital structure: 1 . Bonds with market value of $ 2 , 0 0 0 , 0 0 0 2

A firm has the following capital structure:
1. Bonds with market value of $2,000,000
2. Preferred Stock with a market value of $700,000
3. Common stock, of which 100,000 shares is outstanding. Presently, each common stock is selling at $20 per share
The preferred stock price per share is $40 and pays a $2
dividend. Common stock shares sell for $20 and pay a $2 dividend. Dividends for common stock are expected to grow by 2%. Bond price is $970, and the bond coupon rate is 6.0%. The bonds mature in 10 years.
The firms tax rate is 30%. The company has $2,000,000 in sales, and expenses of $1,175,000. The initial investment of $5,000,000 will be depreciated straight-line over 10 years. The project is expected to last 10 years.
1. What is the firms Weighted Average Cost of Capital (WACC)?
_____________________(Chapter 13)
2. What is the firms Operating Cash Flow (OCF)?
______________________(Chapter 9)
3. Using your computed WACC compute the NPV.(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

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