Mars car company has a capital structure made up of 40 debt

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Mars Car Company has a capital structure made up of 40% debt and 60% equity and a tax rate of 30%. A new issue of $1,000 par bonds maturing in 20 years can be issued with a coupon of 9% at a price of $1,098.18 with no flotation costs. The firm has no internal equity available for investment at this time, but can issue new common stock at a price of $45. The next expected dividend on the stock is $2.70. The dividend for Mars Co. is expected to grow at a constant annual rate of 5% per year indefinitely. Flotation costs on new equity will be $7.00 per share. The company has the following independent investment projects available:

Project Initial Outlay IRR
1 $100,0000 10%
2 $10,000 8.5%
3 $50,000 12.5%

Which of the above projects should the company take on?
A)Project 3 only B) Projects 1, 2, and 3
C) Projects 1 and 3 D) Projects 1 and 2

Reference no: EM13599836

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