Calculation questions

Must show steps in all calculations. Final answer only will result in zero point.

Question $16(17$ points$)$

Nova Corp. has $1$ million shares of common stock outstanding. It just paid an annual dividend of D$0=$ $$1$ per share. ABC Industries always retains $60\%$ of its earnings, which it uses for investment projects that earn a $15\%$ ROE.

Investors expect the share price next year to be P$1=$ $$25.$ In addition, the company also has $100,000$ shares of preferred stock. and they pay an annual dividend of $$15$ with $10\%$ required rate of return. The company has $25,000$ bonds with an $8\%$ coupon rate. They mature in $10$ years. Interest is paid semi$-$annually. The yield to maturity on other bonds of similar risk is $6\%.$ The corporate income tax rate is $40\%.(17$ points$)$

a$)$ What is the WACC of Nova Corp.?

b$)$ Nova Corp. is considering investing $$1$ million in a project that has a similar risk level to the company. The project will be financed through the same capital structure as the company. The project is expected to generate annual operating cash flow of $$160,000$ for $10$ years without salvage value. If the floatation costs for bonds, preferred shares and common shares are $3\%,6\%$ and $7\%$ respectively, should you accept the project after considering issuing floatation$$costs$?$