Company XYZ has the following capital structure as of 12/31/10:
Debt	250,000
Equity (Common Stock)	100,000
Equity (Preferred Stock)	50,000
The company expects to maintain this capital structure in the future and any future
financing will be done as they have done in the past.
In '11, they are considering the purchase of as asset which would cost $75,000. The '11 information
includes the impact of this asset. All changes from '10 to '11 can be attributed to the benefits
of this asset.
The asset would be depreciated based on 10 year MACRS. The project will be evaluated
over 3 years.
The company's financial situation is as follows:
12/31/10	12/31/11
Revenue	1,000,000	1,094,000
Expenses	880,000	935,000
Revenue is expected to increase by 4% each and every year (after year 1) ; Expenses are
expected to decrease by 2% each and every year (after year 1).
Company is in the 40% tax bracket
Select information relative to projected stock prices, dividends and bond rates are as follows:
Stock prices:
Common - projected'11	50.00	Preferred - projected'11	55.00
Dividends
Dividend - Common '07	0.75
Dividend - Common '08	0.82
Dividend - Common '09	0.87
Dividend - Common '10	0.94	Dividend - Preferred '11-projected	2.85
Bond - Market rates
Market rate - '09	11.0%
Market rate - '10	12.0%
Market rate - '11	10.0%
Anticipated administrative cost to issue stock are as follows:
Common	5% of sales price
Preferred	6% of sales price
Based on NPV - at Cost of Capital plus 3% - should the asset be purchased?
Based on NPV - If the company elects to finance strictly via bonds - should the purchase be made?
What is the IRR of this project?
What is the Payback?

1) Company XYZ has the following capital structure as of 12/31/10: Debt 250,000 Equity (Common Stock) 100,000 Equity (Preferred Stock) 50,000 The company expects to maintain this capital structure in the future and any future financing will be done as they have done in the past. In '11, they are considering the purchase of as asset which would cost $75,000. The '11 informa includes the impact of this asset. All changes from '10 to '11 can be attributed to the benefits of this asset. The asset would be depreciated based on 10 year MACRS. The project will be evaluated over 3 years. The company's financial situation is as follows: 12/31/2010 Revenue 1,000,000 Expenses 880,000 Revenue is expected to increase by 4% each and every year (after year 1) ; Expenses are expected to decrease by 2% each and every year (after year 1). Company is in the 40% tax bracket Select information relative to projected stock prices, dividends and bond rates are as follows: Stock prices: Common - projected'11 50.00 Preferred - projected'11 Dividends Dividend - Common '07 0.75 Dividend - Common '08 0.82 Dividend - Common '09 0.87 Dividend - Common '10 0.94 Bond - Market rates Market rate - '09 11.0% Market rate - '10 12.0% Market rate - '11 10.0% Anticipated administrative cost to issue stock are as follows: Common 5% of sales price Preferred 6% of sales price Dividend - Preferred '11-project Based on NPV - at Cost of Capital plus 3% - should the asset be purchased? Based on NPV - If the company elects to finance strictly via bonds - should the purchase be mad What is the IRR of this project? What is the Payback? e and any future ost $75,000. The '11 information e attributed to the benefits ect will be evaluated 12/31/2011 1,094,000 935,000 year 1) ; Expenses are bond rates are as follows: eferred - projected'11 55.00 vidend - Preferred '11-projected 2.85 should the purchase be made