Instructions:

Answer all 4 questions and submit answers through blackboard prior to the due date to receive full credit. You will receive 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 a Capital Structure as follows:

The market value of the bonds is $2,000,000,

The market value of the Preferred Stock is $1,000,000.

Firm has 500,000 shares of common stock (equity) outstanding, selling for $20 per share

The preferred stock share price is $50 and which a $4 dividend. Each share of common stock sells for $20 and pays a $1.00 dividend, which is expected to grow by 2% per year. The price of the bonds is $818, and the coupon rate is 5%. The bonds will mature in 10 years.

The firms tax rate is 40%. The company has $2,500,000 in sales, and expenses of $1,000,000. The initial investment of $5,000,000 will be depreciated straight-line over 10 years. The project is expected to last 10 years.

What is the firms WACC? ________________________________Chapter 13

What is the firms OCF ___________________________________Chapter 9

What 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, will you accept or reject the project? Explain why?