Based on this information

The company has 60,000 bonds with a 30-year life outstanding, with 14 years until maturity. The bonds carry a 9 percent semi-annual coupon, and are currently selling for $925.75.

You also have 100,000 shares of perpetual preferred stock outstanding, which pays a dividend of $8.00 per share. The current market price is $95.00.

The company has 7 million shares of common stock outstanding with a current price of $11.07 per share. The stock exhibits a constant growth rate of 8 percent. The last dividend (D0) was $.90.

Your firms federal + state marginal tax rate is 35%.

Your venture would consist of a new product introduction. You estimate that your product will have a six-year life span, and the equipment used to manufacture the product falls into the MACRS 5-year class. The resulting MACRS depreciation percentages for years 1 through 6, respectively, are 20%, 32%, 19%, 12%, 11%, and 6%.

Your venture would require a capital investment of $18,000,000 in equipment, plus $1,000,000 in installation costs. The venture would also result in an increase in accounts receivable and inventories of $3,000,000 (this represents an overall increase in net working capital of $3,000,000 needed to get the project started, in addition to the investment in the equipment and installation).

At the end of the six-year life span of the venture, you estimate that the equipment could be sold at a $4,800,000 salvage value.

Your venture would incur fixed costs of $1,100,000 per year, while the variable costs of the venture would equal 30 percent of revenues. You are projecting that revenues generated by the project would equal $8,000,000 in year 1, $15,000,000 in year 2, $16,000,000 in year 3, $18,000,000 in year 4, $10,000,000 in year 5, and $9,000,000 in year 6.

1. Costs of the individual capital components:

a. long-term debt (R_d) =10%

b. preferred stock (R_p)= 8.42%

c. equity (use DCF approach) (R_e)=16.78%

2. Determine the weighted average cost of capital.=12.22%

3. Compute the Year 0 initial investment for your project.=$22,000,000

prepare a 750 word report for the firms CEO and Board of Directors indicating why you believe it will benefit the organization to pursue this new product. [Note: There is an article posted in Moodle that may help you understand the role of the Board in making capital budgeting decisions. This might help you with your communication approach.] In the report, include your full analysis of the anticipated cash flows, and all four of the analysis technique results (IRR, NPV, payback period, and discounted payback period). Identify any assumptions youve made in your analysis, and include some discussion of the potential for the variability of results. In other words, if the future revenues are higher or lower than anticipated, how might that impact the overall results they can expect? They will want to know what the risk is if there is some variation in the actual results, so do your best to address this concern. Lastly, as you did for the project team, be sure to write the formal report in 3^rd person (dont say we, I, our or us but rather use statements that talk about the company and the project from a factual, 3^rd person perspective.