Current Financing

The company has issued 1 million shares that currently sell for $20 per share. Investors expect to earn 6% above the companys bond yield on average. The company has issued 30,000 bonds that offer an annual coupon rate of 5%, a face value of $1,000 and have five years remaining until maturity. They currently sell for $1,000 per bond. The corporate tax rate is 25%. The company has paid out all of its earnings as dividends for many years.

The Project

The project has an up-front cost of $5,000,000 and will return $2,000,000/year for 4 years with the first payment coming in year 3.