Please show calculations.If using Excel, please show formulas and data.

Practice Review Project

Question: Should we proceed with this project?

Calculate WAAC and any addition calculations to support the decision ***

Particulars:

Initial Investment = $5,000,000

Taxes= 35%

Beta= 1.27

T note= 2.4%.

Dividends paid = $1,000,000 with a payout ratio of 33%

Estimated sales are:

$2,500,000 for year 1

$4,000,000 for year 2

$7,500,000 for year 3

$6,000,000 for year 4

$6,000,000 for year 5

$4,500,000 for year 6

$1,500,000 for year 7 with a sale of the asset in year for $250,000 *

Variables cost are 52% of sales

Fixed costs are$400,000 per year

The company's benchmark is the Wilshire 5000 which is expected to return 11% next year

250,000 shares of common stock quoted today at $25 paying a dividend of $1.20 per share

100,000 shares preferred stock quoted today at $45 paying a dividend of $2.50 per share

Companyispayingon a20 year,4.75%loanissued5years ago with today'sprincipal=$2,750,000

There are two corporate bonds outstanding:

Assume these bonds pay 2x annually ***

The current year is 2020 ***

1. 20 year bond issued 5 years ago with a coupon rate of 4.25% with today's market rate= 3.75% (FV $2,000,000)
2. 15 yearbond issued 3 years ago with a coupon rate of 3.88% with today's market rate= 3.6% (FV $2,000,000)

The companies estimates its return on equity is 12%