You will evaluate the project based on WACC. Your firm currently has a single $100,000 par value bond outstanding with 10 years remaining until maturity. This is your only bond issue and its current market value is $111,000 based on a YTM of 8%. Your firms common stock is currently selling for $18 per share with 30,000 shares outstanding. Your firms beta is .98. The S&P 500 and 3-month T-Bills is averaging 7.5% and 4% per year respectively.

2. Calculate the required rate of return on debt

3. Calculate the required rate of return on common stock

4. Is the firm primarily debt or equity-financed?

a. Evaluate its capital structure in light of the debt overhang theory.

5. Calculate the WACC

Use the WACC to evaluate the project based NPV criteria.

a. Would you recommend the firm pursue this project, why?