Question
Use the following information for a firm. Target capital structure (Market Value) Bonds $200 million Preferred stocks $50 million Common stocks $400 million Total $650
Use the following information for a firm. Target capital structure (Market Value) Bonds $200 million Preferred stocks $50 million Common stocks $400 million Total $650 million Bonds have an 8-year remaining maturity, a 5% annual coupon, and $1,000 par. They are selling at $924. Preferred stocks are selling at $25 with a $2 perpetual dividend per share. Common stocks are selling at $38. The next years dividend is expected to be $3 per share and its sustainable growth rate is expected to be 6%. The firms tax rate is 35%.
1 .Find the firms WACC. (5 pts)
2. Suppose that the firm is considering a 5-year project that has an initial cost of $2 million. The project is as risky as the firms existing assets and it is expected to generate equal cash flow every year for 5 years. If the project is acceptable, what is the minimum annual cash flow that should be generated by the project?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started