Calculate the npv for the new project

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The following information is associated with a proposed new project. The initial cost of the project is estimated to be $100,000 and the project's cash flows over its six-year contract are estimated to be $26,000 annually. The firm's current cost of capital for common stock equity is 12%. However, another firm, whose principal focus is in the same field, is publicly traded and has a beta of 1.5. The market is currently yielding 12% and the yield on short-term treasury bills is 6%. Use CAPM to determine the cost of capital for new stock issue (assume it includes flotation costs). Bonds have a cost of capital of 10% (including flotation costs and price adjustments). Assume a 50% weighting for new stock issue and 50% weighting the new bond issue. Calculate the WACC for the firm and use that to calculate the NPV for the new project is. What is the NPV? Would you undertake the project? Show you work.

Reference no: EM131897960

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