Question
A firm has the following capital structure: 1.Bonds with market value of $3,000,000 2.Preferred Stock with a market value of $2,000,000 3.Common stock, of which
A firm has the following capital structure:
1.Bonds with market value of $3,000,000
2.Preferred Stock with a market value of $2,000,000
3.Common stock, of which 400,000 shares is outstanding.Presently, each common stock is selling at $30 per share
The preferred stock price per share is $60 and pays a $5 dividend. Common stock shares sell for $30 and pay a $2 dividend.Dividends for common stock are expected to grow by 3%. Bond price is $950, and the bond coupon rate is 6.5%. The bonds mature in 7 years.
The firm's tax rate is 38%. The company has $3,500,000 in sales, and expenses of $1,200,000. The initial investment of $5,500,000 will be depreciated straight-line over 10 years. The project is expected to last 10 years.
(WACC is 8.76%)
1.What is the firm's Operating Cash Flow (OCF)?
2.Using the WACC is the NPV, using the WACC (use the answer from question 1 above), and OCF (use the answer from question 2 above)?
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