Project analysis – Corporate Finance Assignment | Online Homework Help

Mini case #3

INTRUCTIONS: Answer all 4 questions. Assignment should be submitted in Blackboard by the due date.  This is a 25 point assignment – six (6) points for each correct answer and 1 point for answering all 4 questions

 Partial credit will be given if you give the wrong answer but show the correct formula.

A firm has the following capital structure:

1. Bonds with market value of $3,000,000
2. Preferred Stock with a market value of  $2,000,000
3. Common stock, of which 400,000 shares is outstanding.  Presently, each common stock is selling at $30 per share

The preferred stock price per share is $60 and pays a $5 dividend.  Common stock shares sell for $30 and pay a $2 dividend.  Dividends for common stock are expected to grow by 3%. Bond price is $950, and the bond coupon rate is 6.5%. The bonds mature in 7 years.

The firm’s tax rate is 38%. The company has $3,500,000 in sales, and expenses of $1,200,000. The initial investment of $5,500,000 will be depreciated straight-line over 10 years. The project is expected to last 10 years.

1. What is the firm’s Weighted Average Cost of Capital (WACC)?

_____________________  (Chapter 13)

• What is the firm’s Operating Cash Flow (OCF)?

______________________ (Chapter 9)

SEVEN SIGNS IN JOHN PROJECT

• Using the WACC is the NPV, using the WACC (use the answer from question 1 above), and OCF (use the answer from question 2 above)?

______________________ (Chapter 8)

• Based on your answer to question #3, would you accept or reject the project? Explain why?

_______________________________________________________Chapter 8