Would this expansion create value for brook enterprises

Assignment Help Finance Basics

Reference no: EM13285824

Brook Enterprises has 12,000 bonds outstanding that have a 6% coupon rate and a $1,000 par value. The bonds are selling at a quoted price of 98, pay interest semi-annually, and mature in 28 years. There are 400,000 shares of 6 percent $100 par value preferred stock outstanding with a current market price of $83 a share. In addition, there are 1.40 million shares of common stock outstanding with a market price of $54 a share and a beta of 1.2. These shares were originally sold for $30 each. The common shareholders received a dividend of $1.80 per share last year. Based on the last 5 years growth, the company estimates a growth rate in dividends of 4% forever. The firm's marginal tax rate is 34%.

Brook Enterprises is considering a major expansion that would cost $25 million. The project would provide cash flows before tax of $3 million per year for 20 years beginning at the end of year one. At the end of 20 years the machine can be salvaged for $2 million. The machine belongs to asset class with a CCA rate of 25%. Assume the class will stay open at the end of the project.

Flotation cost to issue new preferred share is 5%, new debt is 3%, and new common share is 7%.

Would this expansion create value for Brook Enterprises? Perform a NPV (net present value) analysis.

Reference no: EM13285824

Questions Cloud

Patient suffered from kidney failure : A patient suffered from kidney failure a few days aft er being exposed to a toxic chemical. A biopsy of his kidney indicated that many of the thousands of epithelium-lined tubules making up the kidney had lost their simple cuboidal epithelial cells, ..

Multiple influences of media on child cognitive development : Describe multiple influences of media on child cognitive development and socialization. Highlight parental actions to monitor media use, including your view of effectiveness.

Evaluate the acceleration numerically : In atwood's machine two masses m1 and m2 hang vertically, connected over a frictionless pulley. Evaluate the acceleration numerically

Find the normal force on the book : Your 2.20 kg physics book rests on a horizontal tabletop. Find the normal force on the book. Suppose you pull up on the book with a 15.0 N force

Would this expansion create value for brook enterprises : Would this expansion create value for Brook Enterprises? Perform a NPV (net present value) analysis.

Find the resistance of the toasters heating element : If a toaster is plugged into a source of alternating voltage with an rms value of 66.2 V, find the resistance of the toaster's heating element

What are the advantages of a depository institution : What are the advantages of a depository institution having many branches in a city or state as opposed to just one main office location? What are the disadvantages?

What is the rockets acceleration : A constant force of 115 N directed upward is applied to a 4.0 kg toy rocket by the rocket's engine. What is the rocket's acceleration

What are equitable and legal remedies-common law : As a new manager in your department, you are tasked with the job of providing employee training for members of your department who have interactions with the legal department. What is common law? What are the sources of American law? What are equitab..

User Account

All Pages