Expected return from a new capital investment project

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What would be the minimum expected return from a new capital investment project to satisfy the suppliers of the capital? Assume the applicable tax rate is 40%, interest on debt is 7%, flotation cost per share of preferred stock is $0.75, and flotation cost per share of common stock is $4. The preferred and common stocks are selling in the market for $26 and $143 a share respectively, and they are expected to pay a dividend of $1.50 and $4.50, respectively, in one year. The company's dividends are expected to grow at 7% per year. The firm would like to maintain the existing capital structure to finance the new project.

A company, West Berwick Enterprises, has a capital structure as follows:

Total Capital       $1,000,000                                          

Debt      $400,000                                             

Preferred Stock                $100,000                                             

Common Equity                $500,000 

Reference no: EM13796440

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