Question
I need answer to this question,do not copy paste from Chegg. Trader Bubba Industries must choose between solar and an electric-powered forklift truck for moving
I need answer to this question,do not copy paste from Chegg.
Trader Bubba Industries must choose between solar and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The solar truck will cost more, but it will be less expensive to operate; it will cost $30,000, whereas the electric-powered truck will cost $20,000. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the solar-powered truck will be $8,000 per year and those for the electric-powered truck will be $5,000 per year. Trader Bubba Industries assets are $750 million, financed through bank loans, bonds, preferred stocks, and common stocks. The amounts are as follows: Bank loans: $ 100 million borrowed at 3% Bonds: $280 million, paying 5% coupon with semi-annual payments, and maturity of 10 years. Trader Bubba sold its $1,000 par-value bonds for $1020 and had to incur $20 flotation cost per bond. Preferred Stocks: $120 million, paying $15 dividends per share. Trader Bubba sold its preferred shares for $220 and had to incur $20 per share flotation cost. Common Stocks: $250 million, beta is 2, the risk-free rate is 2 percent, and the market rate is 6%. Tax rate: 40 percent Please answer the following questions using the information above. Dont forget to show all your work. a) What is the after-tax cost of the loans? b) What is the after-tax cost of the bonds? c) What is the after-tax cost of the preferred stocks? d) What is the after-tax cost of the common stocks? e) Calculate the weighted average cost of capital (WACC). Please show your work precisely by indicating each component and weight. f) Calculate the NPV and IRR for each type of truck and decide which to recommend. (Use the cost of capital you found in e when calculating the NPV and IRR)
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