Question: RED Inc. is evaluating a project that will increase annual sales by $175,000 and annual cash costs by $98,000. The project will initially require $130,000

RED Inc. is evaluating a project that will increase annual sales by $175,000 and annual cash costs by $98,000. The project will initially require $130,000 in fixed assets that will be depreciated straight-line to a zero-book value over the 4-year life of the project. The applicable tax rate is 32 percent.

RED, Inc. is looking at raising additional capital for a future project. For RED, Inc. to determine whether this project is worth investing in, it must first determine the cost of the capital it will use to finance the project.

Q: The firm just paid out a dividend of $4.22 on common stock with an expected growth rate of 4.5%. Calculate the cost of common equity.

share price 112.55

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