Mini Case #$3$

INTRUCTIONS:

This assignment must be submitted in Blackboard by the due date in Excel, Word or PDF$.$

This is a $20$ point assignment $$ five $(5)$ points for each correct answer to the $4$ questions below.

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

A firm has the following capital structure:

Bonds with market value of $$2,000,000$

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

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 $$20$ and pay a $$2$ dividend. Dividends for common stock are expected to grow by $2\%.$ Bond price is $$970,$ and the bond coupon rate is $6\mathrm{.}0\%.$ The bonds mature in $10$ years.

The firm$$s tax rate is $30\%.$ The company has $$2,000,000$ in sales, and expenses of $$1,175,000.$ The initial investment of $$5,000,000$ will be depreciated straight$-$line over $10$ years. The project is expected to last $10$ years.

What is the firm$$s Weighted Average Cost of Capital $($WACC$)?$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_($Chapter $13)$

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

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_($Chapter $9)$

Using your computed WACC compute the NPV$.($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?