recommend whether or not the company should invest in a capital budgeting project. The cash flows for the project have already been calculated and are shown in Figure 1 beloW Information for the weighted average cost of capital (WACC) is in Figures 2 and 3, It is your job to: (1) estimate the firm's weighted average cost of capital (WACC) (2) calculate the project's Net Present Value(NPV), Internal Rate of Return (IRR), and (3) recommend whether the project should be accepted or rejected and why Figure 1 Year Cash Flows ($140,000) 20000 23000 25000 20000 20000 Figure 2. 1 2. The firm's federal-plus-state tax rate is 40 percent. The firm has outstanding an issue of 6 percent, S1,000 par, semiannual coupon, noncallable bonds with 15 years remaining to maturity. They sell at a price of $980.00 3. The current price of the firm's preferred stock (6 percent dividend, S100 par value, semiannual dividend payment) is S185. New preferred stock could be sold to the public at this price. 4. The firm's common stock is currently selling at $250 per share. Its last dividend (Do) was S3.50 per share and investors expect the dividend to grow at a constant 6% annual rate into the foreseeable future. Dividends are paid semiannually. 5. New common stock would involve flotation costs of 10% New bonds would involve flotation costs of 3.5%. New preferred stock would incur flotation costs of $2.50 per share Figure 3. 2018 Balance Sheet (thousands of dellars) cash 95 accounts payable 200 receivable 33 notes 250 369 ccruals 101 799 2156 current liabilities long-term debt (bonds) 0 current assets 551 gross fixed assets accum. depreciation 500 preferred stock net fixed assets total assets 1656 2455 common stock paid-in capital 100 retained eamings total common oquity total liabilities and equity 1079 2435 recommend whether or not the company should invest in a capital budgeting project. The cash flows for the project have already been calculated and are shown in Figure 1 beloW Information for the weighted average cost of capital (WACC) is in Figures 2 and 3, It is your job to: (1) estimate the firm's weighted average cost of capital (WACC) (2) calculate the project's Net Present Value(NPV), Internal Rate of Return (IRR), and (3) recommend whether the project should be accepted or rejected and why Figure 1 Year Cash Flows ($140,000) 20000 23000 25000 20000 20000 Figure 2. 1 2. The firm's federal-plus-state tax rate is 40 percent. The firm has outstanding an issue of 6 percent, S1,000 par, semiannual coupon, noncallable bonds with 15 years remaining to maturity. They sell at a price of $980.00 3. The current price of the firm's preferred stock (6 percent dividend, S100 par value, semiannual dividend payment) is S185. New preferred stock could be sold to the public at this price. 4. The firm's common stock is currently selling at $250 per share. Its last dividend (Do) was S3.50 per share and investors expect the dividend to grow at a constant 6% annual rate into the foreseeable future. Dividends are paid semiannually. 5. New common stock would involve flotation costs of 10% New bonds would involve flotation costs of 3.5%. New preferred stock would incur flotation costs of $2.50 per share Figure 3. 2018 Balance Sheet (thousands of dellars) cash 95 accounts payable 200 receivable 33 notes 250 369 ccruals 101 799 2156 current liabilities long-term debt (bonds) 0 current assets 551 gross fixed assets accum. depreciation 500 preferred stock net fixed assets total assets 1656 2455 common stock paid-in capital 100 retained eamings total common oquity total liabilities and equity 1079 2435
