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Bob's is a retail chain of specialty hardware stores. The firm has 1 8 , 0 0 0 shares of stock outstanding that are currently
Bob's is a retail chain of specialty hardware stores. The firm has shares of stock outstanding that are currently valued at $ a share and provide a rate of return of percent. The firm also has bonds outstanding that have a face value of $ a market price of $ and a coupon rate of percent. These bonds mature in years and pay interest semiannually. The tax rate is percent. The firm is considering expanding by building a new superstore. The superstore will require an initial investment of $ million and is expected to produce cash inflows of $ million annually over its year life. The risks associated with the superstore are comparable to the risks of the firm's current operations. The initial investment will be depreciated on a straightline basis to a zero book value over the life of the project. At the end of the years, the firm expects to sell the superstore for an aftertax value of $ million. Should the firm accept or reject the superstore project and why?
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