Delta Company is considering investing in an independent project that is expected to cost $820,000. The project is expected to generate cash flows of $160,000 for each of the next six years. Delta will finance the project using 40% debt, 50% common stock, and 10% preferred stock. The company plans to issue 30-year bonds that carry a 3% coupon rate. These bonds would sell for $1000, but the company will have to pay a floatation cost equal to 8% of the market value of the bonds. Delta Corp. just paid a $1.50 dividend on its common stock, which will grow at a 7% rate indefinitely. The common stock currently sells $80/share, but the firm will pay a floatation cost equal to 5% of the stocks market value. Deltas preferred stock pays a $8.40 dividend and is currently worth $131.25/share. The company will pay a flotation cost equal to 20% of the market value per share for new preferred stock. The companys tax rate is 30% and management will use NPV to evaluate the project.

Should the company pursue the project?

Yes

No

The company would be indifferent between accepting and rejecting the project.

Cannot be determined.