Question

y adding Oberash auto St. Preferred on &X cost en Group is considering Opport another division 20 that requires a cash - $30,000 and is expected to in after-tax generate cash flows each year coet se next five years. The company's tard Capital structure is 40% debt 151. preter nd 451 common equity. The Ifter-taxa I debt is 6%, the cost of preferred is and the cost of retained extning s is 12 The fion will not be issuing any newst umt is the NPV of this project? Your asuar should be between 94.5o ano randed to 2 decimal praus, with no spella characters. Cerred is 11 127. ew stock. 4. So ad 920.42

Answer 1

After-tax Market cost % value 12.00% $ 45 Market value weights 0 .4500 WACC (Cost %xWeights) 5.40% Common equity Preferred stock 7.00% $ 15 0.1500 1.05% Bonds 6.00% $ 40 0.4000 2.40% Total $ 100.0 1.0000 Weighted average cost of capital (WACC) 8.85%

Year Cash flow [email protected]% B 0 $ 1 $ 2 $ 3 $ 4 $ 5 $ (30,000) 7,740 7,740 7,740 7,740 7,740 1.000 $ 0.919 $ 0.844 $ 0.775 $ 0.712 $ 0.654 $ Present value AxB (30,000.00) 7.110.70 6,532.57 6,001.44 5,513.50 5,065.23 Net present value $223.44

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