Gizmo Inc has outstanding 10 year bonds with a 10% coupon rate, annual payments selling for $1,250. The par value is $1,000. Gizo Inc. preferred stock is selling for $100 and pays a dividend of $12.50. Gizmo Inc. common stock has a beta of 2.0. The risk-free rate is 5% and the market risk prum is 5%. The Capital structure based on book value weights is 30% debt, 20% preferred stock and 50% common equity. However, the firm's target capital structure is 20% debt, 10% preferred stock and 70% common equity. The firm has a marginal tax rate of 25%. Gizmo Inc. is considering the purchase of a new machine for 1,000,000. It will be fully depreciated at the time of purchase and can be used for three years at which time it will have a market value of $200,000. Purchase of the new machine will cause an increase in net operating working capital by $250,000. Before tax operating costs are expected to decrease by $600,000 each year. What is the before-tax cost of debt? 10.00%6.25%10.28% Question 12 (1 point) What is the cost of preferred stock? 15.00%10.0%12.50% Question 13 (1 point) What is the cost of common equity? 15.00%12.50%10.70% What is the after-tax cash flow from the sale of the machine at the end of the third year? 200,000150,000180,000 Question 15 (1 point) What is the weighted average cost of capital? 10.69%16.31%12.73% Question 16 (1 point) What is the after-tax cash flow from the sale of the machine at the end of the project? 100,000150,00040,000 What is the Free Cash Flow for year 0 ? (1,000,000)(750,000)(1,250,000) Question 18 (1 point) What is the Free Cash Flow for year 1 ? 410,000450,000444,000 Question 19 (1 point) What is the Free Cash Flow for year 3 ? 950,000750,000850,000 What is the IRR for the project? 29.96%19.35%15.55%15.4% Question 21 (1 point) Should you accept the project? No Yes