26 Jul WHAT IS THE FIRMS WEIGHTED AVERAGE COST OF CAPITAL (WACC OR RWACC)?
2-The capital structure of a company consists of debt comm Show more can someone help to solve this problem? 2-The capital structure of a company consists of debt common equity and preferred stock. The firm has 10 million shares of common stock outstanding 500000 shares of preferred stock outstanding and 200000 bonds outstanding with $1000 par value each. The common stock currently trades for $50 per share and has a beta of 1.80 the preferred stock pays annual dividend of $10 per share in perpetuity and currently sells for $100 per share and the bonds are currently sell for 110 percent of par. The market risk premium is 6 percent Treasury bills are yielding 4 percent and the firms tax rate is 35 percent. The before-tax cost of debt is 8 percent. a) What is the firms weighted average cost of capital (WACC or RWACC)? b) The firm is evaluating a new 5-year investment project that has the same risk as the firms typical project. The project requires an initial investment of $20 million. It is expected to generate annual after-tax cash flows of $8 million for 5 years. The project has no net working capital requirement and no salvage value. Find the net present value (NPV) of the project. Show less
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