Question
United Water Services, Inc, a developer of local area water systems serving residential and commercial customers, has identified a potential opportunity for capital investment. UWSI
United Water Services, Inc, a developer of local area water systems serving residential and commercial customers, has identified a potential opportunity for capital investment. UWSI is considering building a water system to serve customers in southwestern Faulkner County. The company has gathered the following company and project information.
Project cost $ 2.5 million
Annual After Tax Cash flows $ .75 million
Life of project 7 years
Marginal Tax Rate 34 %
The capital structure of UWSI is as follows:
Debt(bonds) $ 20.0 million
Common equity $ 30.0 million
Debt/bond information:
Coupon rate 10%
Par value 1000.
Years to maturity 6
Current Market price 1100.
Common stock information:
Beta .8
Market return 15.0 %
Risk-free rate 2.25 %
Please make a recommendation to accept or reject the project. Complete the following steps.
- cost of debtkb--find the yield to maturity on the bonds
- CAPMuse the CAPM to calculate kcs
- WACC--kWACC
- NPV, IRR, and Payback
- Decision? Why
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started