Calculate the npv for the new project

Assignment Help Financial Management

Reference no: EM131897960

The following information is associated with a proposed new project. The initial cost of the project is estimated to be $100,000 and the project's cash flows over its six-year contract are estimated to be $26,000 annually. The firm's current cost of capital for common stock equity is 12%. However, another firm, whose principal focus is in the same field, is publicly traded and has a beta of 1.5. The market is currently yielding 12% and the yield on short-term treasury bills is 6%. Use CAPM to determine the cost of capital for new stock issue (assume it includes flotation costs). Bonds have a cost of capital of 10% (including flotation costs and price adjustments). Assume a 50% weighting for new stock issue and 50% weighting the new bond issue. Calculate the WACC for the firm and use that to calculate the NPV for the new project is. What is the NPV? Would you undertake the project? Show you work.

Reference no: EM131897960

Questions Cloud

Complete a financial risk assessment : Taking on the role of a CEO, develop a PowerPoint presentation of approximately 15 slides that explains how you would adapt the Western leadership strategies.

Money market account that averages return : James has no outstanding debt and invests all her money in a money market account that averages a return of 0.85%

Approach called that we use to find the best guess : What is the approach called that we use to find the "best guess" linear equation for our data? How do we know it is the "best guess?"

Find the probability that the sample mean is less : Find the probability that the sample mean is less than 15 minutes. (i.e. Find P[ D

Calculate the npv for the new project : Calculate the WACC for the firm and use that to calculate the NPV for the new project is. What is the NPV?

Examine how the article relates to the selected topic : Search for a recent article (within 6 months) related to the topic of the week in an online business newspaper or business magazine of your choice.

Explain the effect the ban of free expression had on ideas : Explain the effect the ban of free expression had on ideas at the time. Do you believe such a ban can be done now in this day and age?

Assume production costs are uniformely distributed : Find the probability that costs are between $300 nad $380. In the same time, somebody claims that it is the same as in between $200 and $280.

Draw a context-level data flow diagram for weaver pizza : Draw a context-level data flow diagram for Weaver Pizza.

User Account

All Pages