Question
Reputation Swift Inc. is considering a project that will initially cost $450,000, and it will generate after-tax cash flows of $180,000 per year for the
Reputation Swift Inc. is considering a project that will initially cost $450,000, and it will generate after-tax cash flows of $180,000 per year for the next 3 years. The risk-free rate in the market is 1.53 percent, the company has a beta of 1.84, and the expected market risk premium is 8.30 percent. The firms outstanding bonds each have a face value of $1,000, mature in 17 years, have a coupon rate of 11 percent, and pay interest semi-annually. There are 15,000 bonds outstanding with each bond currently trading at 106 percent of face value. In addition, the firm has 80,000 shares of common stock outstanding that are trading at $182 per share. The firm also has 20,000 shares of 12.5 percent preferred stock outstanding that are trading at $118 per share. The preferred stock has a face value of $100. Assume the corporate tax rate is 21 percent.
-What is the weight of debt?
-What is the cost of preferred stock?
-What is the post-tax cost of debt?
-What is the weighted average cost of capital?
-What is the net present value of this project?
-What is the profitability index of this project?
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