Case Narrative:
The firm’s tax rate is 35%. The company has $2,000,000 in annual sales, and annual fixed expenses of $1,100,000 and $500,000 in variable expenses. There was an initial investment in the firm of $1,500,000, which will be depreciated straight-line over 10 years. The project is expected to last 10 years.
The firm has a Capital Structure as follows:
The market value of the bonds is $2,000,000.
The market value of the Preferred Stock is $1,000,000.
The market value of the Common stock is $7,000,000
The cost of the preferred stock is 4%, the cost of the common stock is 6%, the cost of the bonds is 8%.
What is the firm’s WACC? ________________________
What is the firm’s OCF __________________________