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.
1. What is the firm’s Market Capitalization? _________________.
2. What is the cost of the preferred stock? ________.
3. What is the cost of the common stock? ________.
4. What is the cost of the bonds? ________ .
5. What is the firm’s WACC? __________ .
6. What is the OCF____________?
7. 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 ______________?
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 ______________?
9. Would you invest in this project? __________.
10. Explain why_________________.