80.2K

Verified Solution

Link Copied!

How can I find the Cost if longterm debt (AT & BT), Cost of preferred stock, and Cost of common stock for the project below? Formulas needed.

Project KAPPA This project requires an initial investment of $2,000,000 in equipment which will cost an additional $200,000 to install. The firm will use the attached MACRS depreciation schedule to expense this equipment. Once the equipment is installed, the company will need to increase net working capital by $125,000. The project will last 6 years at which time the market value for the equipment will be $20,000. The project will project a product with a sales price of $20.00 per unit and the variable cost per unit will be $10.00. The fixed costs would be $100,000 per year. Management wants a 3 percentage point premium applied to the current WACC as the project's hurdle rate. ACME's Market Values of Capital 1. The company has 50,000 bonds with a 30 -year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $915.78. 2. You also have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00. 3. The company has 5 million shares of common stock outstanding with a currently price of $17.00 per share. 4. The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 13 percent. Your stock's beta is 1,22. 5. Your firm's federal + state marginal tax rate is 28%

Answer & Explanation Solved by verified expert

See Answer