Flotation cost for its equity-debt and equity

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Reference no: EM131867769

Scipio Enterprises is expanding in the California. Their facility will cost $5,250,000 and will generate cash flows of $1,250,000 per year for five years. At the end of the 5th year the facility will be sold for a multiple of 2 times cash flow. Scipio has bonds with a maturity of five years that pay a coupon of 12% and currently sell for 128% of par value. Its preferred stock has a dividend of 12% of par value ($100). It has a Beta of 1.2 and an expected market return of 8.5%. The company’s tax rate is 30%. The risk free rate is 3.2%. Market Interest rates are 10%. If the company paid a 7% floatation cost for its equity, and has 50% debt, 25% equity, and 25% preferred. Should you do the deal and why? Show all calculations.

Reference no: EM131867769

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