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Q2

Axis Corp. is studying two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $70,000 and generate cash inflows of $30,000 per year for the next 3 years. Project Thompson replaces the existing system; it will cost $220,000 and generate cash inflows of $50,000 per year for 6 years. Using a(n) 11.38% cost of capital, calculate each project's NPV, and make a recommendation based on your findings. Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,200,000 last year. From those earnings, the company paid a dividend of $1.19 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 45% debt, 25% preferred stock, and 30% common stock. It is taxed at a rate of 21% a. If the market price of the common stock is $35 and dividends are expected to grow at a rate of 5% per year for the foreseeable future, what is the company's cost of retained earnings financing? b. If underpricing and flotation costs on new shares of common stock amount to $9 per share, what is the company's cost of new common stock financing? c. The company can issue $2.01 dividend preferred stock for a market price of $32 per share. Flotation costs would amount to $6 per share. What is the cost of preferred stock financing? d. The company can issue $1,000-par-value, 12% annual coupon, 11-year bonds that can be sold for $1,100 each. Flotation costs would amount to $25 per bond. What is the after-tax cost of debt financing? e. What is the WACC