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What is the firm market capitalization

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Reference no: EM131473082

A firm has a Capital Structure as follows: Market Value of their debt Is $2,000,000, Preferred stock is $1,000,000. There are 500,000 shares of stock outstanding, with a market value of $20 per share.

The preferred stock price is $50 and pays a $4 dividend. The common stock sells for $20 and pays a $1.00 dividend that is expected to grow by 2% per year. The bonds currently sell for $818, and the coupon rate of 5%. The bonds will mature in 10 years. The firm's tax rate is 40%.

The company generates $10,000,000 is sales, expenses are $6,000,000. The initial investment of $1,000,000 is depreciated straight-line over 10 years. 

1. What is the firm's Market Capitalization? _________________. 

2. What is the cost of the preferred stock? ________. 

3. What is the cost of the common stock? ________. 

4. What is the cost of the bonds? ________ . 

5. What is the firm's WACC? __________ . 

6. What is the OCF____________? 

7. Basedon their Initial investment $1,000,000, what is the NPV of this 5- year projectusing the firm's WACC that you calculated in #5 ______________? 

8.     Basedon their Initial investment $1,000,000, what is the IRR of this 5- year projectusing the firm's WACC, that you calculated in #5 ______________? 

9.     Would you invest in this project? __________. 

10. Explain why_________________.

Reference no: EM131473082

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