I have attached a capital budgeting project that I am working on and could use help answering the phase 1 problems.
CAPITAL BUDGETING PROJECT SOLUTION BALANCE SHEET 2,000,000 Accounts Payable 28,000,000 Notes Payable 42,000,000 Long-Term Debt 133,000,000 Common Equity 205,000,000 18,000,000 40,000,000 60,000,000 Cash and Accruals Accounts Receivable Inventories Preferred Stock 10,000,000 Net Fixed Assets Total Assets Total Claims 205,000,000 Last year's sales were $225,000,000. The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $874.78. . You also have 100,000 shares of $100 par, 996 dividend perpetual preferred stock outstanding. The current market price is $90.00. Any new issues of preferred stock would incur a 3.33% per share flotation cost. The company has 10 million shares of common stock outstanding with a current price of $14.00 per share. The stock exhibits a constant growth rate of 10 percent. The last dividend (Do) was $.80. New stock could be sold with flotation costs of 15 percent. The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 14 percent. Your stock's beta is 1.22. Stockholders require a risk premium of 5 percent above the return on the firms bonds. The firm expects to have additional retained earnings of $10 million in the coming year, and expects depreciation expenses of $35 million. Your firm does not use notes payable for long-term financing. . The firm considers its current market value capital structure to be optimal, and wishes to maintain that structure. (Hint: Examine the market value of the firm's capital structure, rather than its book value when determining the weights in the WACC calculations.) . The firm's management requires a 2% adjustment to the cost of capital for risky projects. CAPITAL BUDGETING PROJECT SOLUTION BALANCE SHEET 2,000,000 Accounts Payable 28,000,000 Notes Payable 42,000,000 Long-Term Debt 133,000,000 Common Equity 205,000,000 18,000,000 40,000,000 60,000,000 Cash and Accruals Accounts Receivable Inventories Preferred Stock 10,000,000 Net Fixed Assets Total Assets Total Claims 205,000,000 Last year's sales were $225,000,000. The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $874.78. . You also have 100,000 shares of $100 par, 996 dividend perpetual preferred stock outstanding. The current market price is $90.00. Any new issues of preferred stock would incur a 3.33% per share flotation cost. The company has 10 million shares of common stock outstanding with a current price of $14.00 per share. The stock exhibits a constant growth rate of 10 percent. The last dividend (Do) was $.80. New stock could be sold with flotation costs of 15 percent. The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 14 percent. Your stock's beta is 1.22. Stockholders require a risk premium of 5 percent above the return on the firms bonds. The firm expects to have additional retained earnings of $10 million in the coming year, and expects depreciation expenses of $35 million. Your firm does not use notes payable for long-term financing. . The firm considers its current market value capital structure to be optimal, and wishes to maintain that structure. (Hint: Examine the market value of the firm's capital structure, rather than its book value when determining the weights in the WACC calculations.) . The firm's management requires a 2% adjustment to the cost of capital for risky projects
