Q.6 The Perkins Company has employed you to analyze a capital project. It has given you the following information: Bond Coupon Rate Price Quote Maturity Number of Bonds Outstanding

1 6.75 955 22 35,000

2 7.25 1100 20 45,000

The bonds make semiannual interest payments and the marginal tax rate is 40 percent. Perkins expects the next dividend (D1) to be $0.45 and its common stock is currently selling for $5.625 per share. The expected growth rate in earnings and dividends is a constant 5%. Perkins has a beta of 1.3, the risk-free rate is 3 percent, and the expected market return is 12.5 percent. Perkins has 25,000,000 shares of common stock outstanding. To complete the analysis, the NPV and IRR need to be calculated the project. The initial investment is $22.2 million. The net cash flows are $6 million for years one through four and $8 million for year five. Should Perkins accept this project?