Reference no: EM131886833
The latest CF is $1,000,000; going up annually by 4% for the next five years. For III, you had bought an asset for $2,000,000 four years ago (life 5 years) and now sell at 50% of the original. The new asset is 30% above the original price of the old asset. Tax rate is 34%.
- WACC: bonds sold at $920. Coupon has 8% annually paid semi. Market price 2% below the coupon. FV $1000
- Preferred stock: $1 on every $18 pref stock. Commission is 5%
- Common stock: Expected dividend is $1.20 per share. Stock price $16 with 3% commission. Growth is 2%
- B/S items: Debt $2M; Pref $1M; Common $3M
Questions:
1. Write down step by step as what to do to decide if this project is good.
A. Initial investment
B. Project your cash flow for the next 5 years
C. Compute the present value in B based on WACC; so compute WACC
D. Cost of debt after tax
E. Cost of preferred
F. Cost common
G. % of each type of capital
H. Final decision
2. Decide if the project is acceptable.