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NCB stock returns have a required rate of return at 15%. NCB bonds carry an...

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Accounting

NCB stock returns have a required rate of return at 15%. NCB bonds carry an 8% coupon rate and the yield-to-maturity of 7%. The market value of the bonds is $200 million. The companys stock, of which 40 million shares are outstanding, sells for $10 per share. The corporate tax rate is 35%. No preferred shares are outstanding.

NCB must decide whether or not to pursue a new project. The initial investment is $30 million. The expected after-tax net cash flows from this project are $8 million a year for the first 5 years and $1.5 million a year for another five more years. Should NCB pursue this project?

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