FINA Inc. considers a project with the following information: Initial Outlay: 1,500 After-tax cash flows:...
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Finance
FINA Inc. considers a project with the following information:
Initial Outlay: 1,500
After-tax cash flows:
Year 1: -$100
Year 2: $1000
Year 3: $700
FINAs assets are $500 million, financed through bank loans, bonds, preferred stocks, and common stocks. The amounts are as follows:
Bank loans: $ 100 million borrowed at 10%
Bonds: $180 million, paying 9% coupon with quarterly payments, and maturity of 5 years. FINA sold its $1,000 par-value bonds for $1,070 and had to incur $20 flotation cost per bond.
Preferred Stocks: $20 million, paying $15 dividends per share. FINA sold its preferred shares for $210 and had to incur a $10/share flotation cost.
Common Stocks: $200 million, the beta of FINA stocks is 1.5, the 90 day Treasury yield is 5%, and the return on the market portfolio is 15 %. FINA is subject to a 20% tax rate.
Assuming the company uses WACC to compute the present value of the future cash flows, please find the following:
5) What is the WACC?
6) What is the IRR?
7) What is the Payback Period?
8) What is the NPV?
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