question:

Discuss the two major conditions required for a company to use its current weighted average cost of capital to evaluate a new project's cash flows. What should managers do if either condition is not satisfied?

Jaguar Products Ltd currently has $200 million of market value debt outstanding. The 9 per cent coupon bonds (semi-annual payments) have a maturity of 15 years, a face value of $1000 and are currently priced at $1,024.87 per bond. The company also has an issue of 2 million preference shares outstanding with a market price of $20. The preference shares offer an annual dividend of $1.20 each. Jaguar Products also has 14 million ordinary shares outstanding with a price of $20.00 per share. The company is expected to pay a $2.20 ordinary dividend one year from today, and that dividend is expected to increase by 7 per cent per year forever. The corporate tax rate is 40 per cent