Q8

3. Calculate the NPV for the following project. Use straight line depreciation over four-year period. Assume zero salvage at the end of the four years, with no required additional working capital. Calculate the NPV to the nearest cent xx.xx and enter without the dollar sign.

WACC 5.7%

Additional investment in fixed assets (depreciable basis) $100,000

Straight-line depreciation rate 25%

Annual sales revenues (constant for three years) $75,000

Operating costs (excl. depreciation) (also constant) $25,000

Tax rate 21.0%

4.A company's perpetual preferred stock will be issued for $93 per share, and pays an annual dividend of $6. In issuing the preferred shares, the company incurs flotation costs of 3%. How much is the cost of capital for the preferred stock? Answer as a percentage to the nearest hundredth as in xx.xx recalling that for two place percentage accuracy, your rate accuracy should be to four places. Hint: With a flotation cost, the firm will be obtaining less than the full price per share!