Your firm should undertake the proposed project

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Use the following information to evaluate whether your firm should undertake the proposed project. The project is expected to generate cash flows of $10,000 a year for years 1-3, and cash flows of $15,000 a year for years 4-6. The initial investment required for the project is $50,000. Your firm has $250 million in long-term debt, no preferred stock, and 15 million common shares outstanding. The current stock price is $45 per share. All of the debt was raised in one bond issue, which has a coupon rate of 4% and currently has a yield to maturity of 4.5%. The firm has a beta of 1.2. Assume a market risk premium of 5% and a risk-free rate of 2.5%, and a tax rate of 35%. Is this an acceptable project for your firm? Why or why not? (Compute return of equity first, then WACC, then NPV of this project).

Reference no: EM132018184

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