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A firm has a Capital Structure as follows: Market Value of their debt Is $2,000,000, Preferred stock is $1,000,000. There are 500,000 shares of stock outstanding, with a market value of $20 per share. The preferred stock price is $50 and pays a $4 dividend. The common stock sells for $20 and pays a $1.00 dividend that is expected to grow by 2% per year. The bonds currently sell for $818, and the coupon rate of 5%. The bonds will mature in 10 years. The firm’s tax rate is 40%. The company generates $10,000,000 is sales, expenses are $6,000,000. The initial investment of $1,000,000 is depreciated straight-line over 10 years. What is the firm’s Market Capitalization? _________________. Chapter 4 What is the cost of the preferred stock? ________. Chapter 7 What is the cost of the common stock? ________. Chapter 7 What is the cost of the bonds? ________ . Chapter 6 What is the firm’s WACC? __________ . Chapter 13 What is the OCF____________? Chapter 9 Based on their Initial investment $1,000,000, what is the NPV of this 5- year project using the firm’s WACC that you calculated in #5 ______________? Chapter 8 Based on their Initial investment $1,000,000, what is the IRR of this 5- year project using the firm’s WACC, that you calculated in #5 ______________? Chapter 8 Would you invest in this project? __________. Chapter 8 Explain why_________________. Chapter 8

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Reid Wolff
Reid WolffLv2
28 Sep 2019

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Beside each question, is a chapter reference if you need to review. I will give partial credit if you get the wrong answer but have shown the correct formula. Your answer must be submitted through blackboard prior to the due date to receive proper credit. If you use excel, you may submit the excel spreadsheet.

A firm has a Capital Structure as follows: Market Value of their debt Is $2,000,000, the Preferred stock is $1,000,000. There are 500,000 shares of stock outstanding, with a market value of $20 per share.

The preferred stock price is $50 and pays a $4 dividend. The common stock sells for $20 and pays a $1.00 dividend that is expected to grow by 2% per year. The bonds currently sell for $818, and the coupon rate of 5%. The bonds will mature in 10 years. The firm’s tax rate is 40%.

The company generates $10,000,000 is sales, expenses are $6,000,000. The initial investment of $1,000,000 is depreciated straight-line over 10 years.

What is the firm’s Market Capitalization? _________________. Chapter 4

What is the cost of the preferred stock? ________. Chapter 7

What is the cost of the common stock? ________. Chapter 7

What is the cost of the bonds? ________ . Chapter 6

What is the firm’s WACC? __________ . Chapter 13

What is the OCF____________? Chapter 9

Based on their Initial investment $1,000,000, what is the NPV of this 5- year project using the firm’s WACC that you calculated in #5 ______________? Chapter 8

Based on their Initial investment $1,000,000, what is the IRR of this 5- year project using the firm’s WACC, that you calculated in #5 ______________? Chapter 8

Would you invest in this project? __________. Chapter 8

Explain why_________________. Chapter 8

A firm has a Capital Structure as follows: Market Value of their debt Is $2,000,000, Preferred stock is $1,000,000. There are 500,000 shares of stock outstanding, with a market value of $20 per share.

The preferred stock price is $50 and pays a $4 dividend. The common stock sells for $20 and pays a $1.00 dividend that is expected to grow by 2% per year. The bonds currently sell for $818, and the coupon rate of 5%. The bonds will mature in 10 years. The firm’s tax rate is 40%.

The company generates $10,000,000 is sales, expenses are $6,000,000. The initial investment of $1,000,000 is depreciated straight-line over 10 years.

What is the firm’s WACC?

Based on their Initial investment $1,000,000, what is the NPV of this 10- year project using the firm’s WACC that you calculated in

Based on their Initial investment $1,000,000, what is the IRR of this 10- year project using the firm’s WACC, that you calculated in

Would you invest in this project?

Explain why?

can someone help to solve this problem?

2-The capital structure of a company consists of debt, common equity, and preferred stock. The firm has 10 million shares of common stock outstanding, 500,000 shares of preferred stock outstanding, and 200,000 bonds outstanding with $1,000 par value each. The common stock currently trades for $50 per share and has a beta of 1.80, the preferred stock pays annual dividend of $10 per share in perpetuity and currently sells for $100 per share, and the bonds are currently sell for 110 percent of par. The market risk premium is 6 percent, Treasury bills are yielding 4 percent, and the firm’s tax rate is 35 percent. The before-tax cost of debt is 8 percent.

a) What is the firm’s weighted average cost of capital (WACC or RWACC)?

b) The firm is evaluating a new 5-year investment project that has the same risk as the firm’s typical project. The project requires an initial investment of $20 million. It is expected to generate annual after-tax cash flows of $8 million for 5 years. The project has no net working capital requirement and no salvage value. Find the net present value (NPV) of the project.

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