Payback and discounted payback

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Company A’s stock currently sells for $80 per share. There are 10.5MM shares outstanding. The company has debt outstanding with a book value of $400MM. Bonds currently yield 10% and trade at 90% of face value. The risk free rate is 8%. Market risk premium is 9% and the company has a beta = 2. Tax rate is 34%.

What is the WACC?

The company above is considering a 5 year project which would require an initial outlay of $800,000 for the manufacturing equipment (depreciated straight line to zero over 8 years). Salvage value in year 5 will be $200,000. In addition, the company will need $200,000 initial investment in working capital. The project will produce OCF of $350,000 for 5 years.

NPV

IRR

PI

Payback and Discounted Payback

Reference no: EM131552273

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