Question
Consider the following information on AJAX Corporation Bonds: 3,000 8% coupon bonds selling at par value $1,000. Common stock: 35,000 shares outstanding, selling for $80
Consider the following information on AJAX Corporation
Bonds: 3,000 8% coupon bonds selling at par value $1,000.
Common stock: 35,000 shares outstanding, selling for $80 per share. Most recent dividend equals $4.
Preferred stock: 20,000 shares of preferred stock with an annual dividend payment of $6 and a price of $60. Dividend information on the common stock for a 4-year recent period is as follows: year 1 / D =2.50: year 2: D = 2.6 year 3: D = 2.75 year 4: D = 2.8
Beta = 1.1 Risk - freerate =6% Marketretum =14% Corporatetaxrate =30%
AJAX is considering the purchase of a steel mill with an initial cost of $30 million. It is expected that the project will provide annual after-tax cash flows of $3,000,000 for 20 years, first cash flow earned after the first year.
Determine whether AJAX should purchase this steel mill.
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