Question
Mini case #3- Project Analysis Instructions: Answer all 4 questions and submit answers through blackboard prior to the due date to receive full credit. You
Mini case #3- Project Analysis
Instructions:
Answer all 4 questions and submit answers through blackboard prior to the due date to receive full credit. You will receive 6 points for each correct answer, and 1 point for answering all 4 questions correctly, for a total of 25 points.
Case Narrative:
The firm's tax rate is 35%. The company has $2,000,000 in annual sales, and annual fixed expenses of $1,100,000 and $500,000 in variable expenses. There was an initial investment in the firm of $1,500,000, which will be depreciated straight-line over 10 years. The project is expected to last 10 years.
The firm has a Capital Structure as follows:
1.The market value of the bonds is $2,000,000.
2.The market value of the Preferred Stock is $1,000,000.
3.The market value of the Common stock is $7,000,000
4.The cost of the preferred stock is 4%, the cost of the common stock is 6%, the cost of the bonds is 8%.
1.What is the firm's WACC? __________________________________Chapter 13
2.What is the firm's OCF ______________________________________Chapter 9
3.What is the NPV, ___________________________________________Chapter 8
4.Based on your answer to question #3, will to accept or reject this project? What is the reasoning for accepting or rejecting the project?
___________________________________________________________Chapter 8
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