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 $2,000,000

2. Preferred Stock with a market value of $700,000

3. Common stock, of which 100,000 shares is outstanding. Presently, each common stock is selling at $20 per share

The preferred stock price per share is $40 and pays a $2

dividend. Common stock shares sell for $20 and pay a $2dividend. Dividends for common stock are expected to grow by 1%. Bond price is $960, and the bond coupon rate is 5.5%. The bonds mature in 6 years.

The firms tax rate is 38%. The company has $2,000,000 insales, and expenses of $1,100,000. The initial investment of $5,000,000 will be depreciated straight-line over 10 years. The project is expected to last 10 years.

1. What is the firms Weighted Average Cost of Capital (WACC)?

_____________________ (Chapter 13)

2. What is the firms Operating Cash Flow (OCF)?

______________________ (Chapter 9)

3. 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)

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

_______________________________________________________Chapter 8