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.

The firms current stock price is $45 and it has 4 million shares of stock outstanding. The firm also has $30 million of preferred stock and $70 million of debt. Calculate the weights of preferred stock.

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