Find an appropriate discount rate

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We would like to compute the Harden Company's costs of capital and evaluate the projects of this company. This is the information related to the market and this company: credit rating is AAA by Moody's. Its stock price per share is $20, book values per share of the stock is $10, the number of the outstanding shares is 1 million, and the beta of its stocks is 1.10. On its balance sheet, we know the book value of its total debt is $10 million and the book value of its total equity is $10 million. Market portfolio return is 15%, US treasury bond yield is 3%, and the credit risk premium of AAA rating bonds is 0.5%. Assume the company's corporate tax rate is 35%. Compute the company's cost of debt capital; Compute the cost of equity capital. Campany the market value of equity. This term is also called market capitalization. Compute the weight of debt. Explain why we use this information from the balance sheet. Compute the WACC. If the company has project: in the beginning, the investment cost is $2500. After one year, two years, and three years, there will be a $1000 cash inflow in each year. This project uses the entire capital of the company. Find an appropriate discount rate. Compute NPV. Does this company accept this project?

Reference no: EM131606120

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