Question
Use the following information for this whole homework. You are evaluating a project that your company wants to undertake. This project will last 20 years
Use the following information for this whole homework. You are evaluating a project that your company wants to undertake. This project will last 20 years and require an initial investment of 5 million dollars today. Expenses will be 2 million in year 1, 100,000 in year 2 and then they will grow 4% per year for the duration of the project. You will not gain any revenue in year 1, but will gain 500K revenue in year 2, then 1 million of revenue in year 3, 2 million of revenue in year 4, 5 million of revenue in year 5. Revenue will then grow at 5% per year for the duration of the project. The preferred weights for costs of capital are 20% for preferred stock, 40% for debt, and 60% for common equity. The corporate tax rate is 40%. The cost of preferred stock is 4%, the cost of debt is 9% and the cost of common equity is 12% (with no flotation costs). A. What is the internal rate of return for this project? (write down the percentage number with 2 decimal places) B. What is the weighted average cost of capital? (again write this as a percentage with 2 decimal places) C. What would be the undiscounted value of this project? (use 2 decimal places) D. What is the Net Present value of this project using the Weighted Average Cost of Capital you found above? (use 2 decimal places in your answer) Please show work and post formulas used
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