Reference no: EM132492699

The land for the factory will cost $810,000 The factory will cost $9,640,000 to build and construction will take two years with construction costs payable in equal installments at the start of each year. The factory will operate for 20 years. At the end of its 20 year lifespan, the land can be resold for $430,000 . There is a 70% probability that the factory's net operating cash flows will be $1,847,294 ; however, there is a 30% chance that net cash flows will only be $1,233,106 . You may assume that net operating cash flows are received at the end of each year.

Question a) What are the Expected net operating cash flows per year?

Question b) What is the Internal Rate of Return for the project?

Question c) What is the Net Present Value of the project?

Question d) Should Anna recommend that the J Corporation build the factory?

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the risk-free rate of return is 2.6%

the market risk-premium is 5.4%

Beta of J Corp.'s stock = 2.00

Expected rate of return on J Corp. stock for the coming year = 13.40%

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Now that Anna has determined an appropriate rate of return for J Corp.'s stock, she must calculate the firm's Weighted Average Cost of Capital (WACC). There are currently 55.6 Million J Corp. common shares outstanding. Each share is currently priced at $17.85 . As well, the firm has 10,000 bonds outstanding and each bond has a face value of $10,000, a yield to maturity of 3.88% and a quoted price of $10,288.40 . J Corp.'s tax rate is 30%. J Corp. has no preferred shares outstanding.

What is J Corp.'s WACC? 12.40%