Mini Case #3 INTRUCTIONS: Answer all 4 questions. Assignment should be submitted in Blackboard by the due date. This is a 20 point assignment Five (5) points for each correct answer. 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 $6000,000 2. Preferred Stock with a market value of $1,000,000 3. Common stock, of which 175,000 shares is outstanding. Presently, each common stock is selling at $69.50 per share The preferred stock price per share is $70 and pays a $5 dividend. Common stock shares sell for $69.50 and pay a $2 dividend. Dividends for common stock are expected to grow by 1%. Bond price is $951.53 and the bond coupon rate is 6.0%. The bonds mature in 5 years. The firms tax rate is 38%. The company has $3,000,000 in sales, and expenses of $2,300,000. 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 firms Weighted Average Cost of Capital (WACC)? _____________________ (Chapter 13)

2. What is the firms Operating Cash Flow (OCF)? ______________________ (Chapter 9)

3. Using the WACC 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)

4. Based on your answer to question #3, would you accept or reject the project? Explain why? _______________________________________________________Chapter 8