Long term debt and preferred stock

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Reference no: EM131077869

A manufacturing facility at a cost of $80MM. is looking for a smart investment decision to expand the company. Analysis has indicated there would be $16,000,000 in Operating cash inflows (savings) each year for the first 5 years.

Make a recommendation to as to whether they should proceed or not. Here are more information:

1. The company’s target capital strategy is 58% long-term debt, 17% Preferred and 25% common stock Equity

2. Tax rate is 28%

3. Equity – current share price is $40 and last year’s dividend was $2. Growth rate has been and is expected to stay at 5%.

a. Company’s risk (beta) has been rated at 0.65

b. The current market is returning 13% while the risk free rate has held steady at 8%

(Since we deliver a dividend, please AVERAGE the two costs to determine the AVERAGE cost of equity for our company)

4. Preferred stock – Fixed dividend of $2.21 and net proceeds from sale would be $28 per share

5. Long term debt – Our bonds are yielding a 9.5% rate

Reference no: EM131077869

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