Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

NAQ co. is considering a new project that to produce a new line of product in 2022. The initial investment in 2021 for producing new

image text in transcribedNAQ co. is considering a new project that to produce a new line of product in 2022. The initial investment in 2021 for producing new products costs $320,000. The cash inflows during the next three years of the project are Year Cash inflows 2022 $80,000 2023 $170,000 2024 $220,000 The capital structure required for the project is from the firms capital with the following information: Debt: 4,000 of 9% coupon bonds outstanding, 3 years to maturity, $1000 par value each and the bonds have Yield to maturity of 12% and make semiannual payment. Bank loans: $200,000 from BBB bank with the real interest rate is 11%. Common stock: 10,000 shares outstanding, next year dividend is expected to be $6 per share and this company expect to pay a dividend constant growth rate of 4% each year. Required rate of return on common stock is 14%. Tax rate is 40%. Required: a. Calculate the value of bond and common stock. (1.5p) b. Calculate WACC assuming that all price from part (a) is the issuing price of securities. (1p) c. Evaluate the project by using NPV, IRR, and discounted payback period.(2p)

Problem 4: (4.5p) NAQ co. is considering a new project that to produce a new line of product in 2022. The initial investment in 2021 for producing new products costs $320,000. The cash inflows during the next three years of the project are Year 2022 2023 2024 Cash inflows $80,000 $170,000 $220,000 The capital structure required for the project is from the firm's capital with the following information: Debt: 4,000 of 9% coupon bonds outstanding, 3 years to maturity, $1000 par value each and the bonds have Yield to maturity of 12% and make semiannual payment. Bank loans: $200,000 from BBB bank with the real interest rate is 11%. Common stock: 10,000 shares outstanding, next year dividend is expected to be $6 per share and this company expect to pay a dividend constant growth rate of 4% each year. Required rate of return on common stock is 14%. Tax rate is 40% Required: a. Calculate the value of bond and common stock. (1.5p) b. Calculate WACC assuming that all price from part (a) is the issuing price of securities. (1p) c. Evaluate the project by using NPV, IRR, and discounted payback period.(2p)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Applied Financial Macroeconomics And Investment Strategy

Authors: Robert T McGee

1st Edition

1137428394, 978-1137428394

More Books

Students also viewed these Finance questions

Question

1. What is game theory?

Answered: 1 week ago