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As a newly hired assistant manager of Quigley Company, you need to decide whether or not project S should be taken. The project requires an initial investment of $1 million, and it will generate $250,000 in revenue in the first year. The revenue is expected to grow at a constant rate of 6% for 5 years till the project expires. The required working capital is 20% of the revenue it generated. The project has the same risk as the firm. The company has common stock with a market value of $100 million, and it has one issue of bond outstanding. The bond has a 6% coupon rate with a total face value of $75 million, and a maturity of 20 years, and YTM of 12%. The coupons are paid semiannually. The current 3-month T-bill rate is 4%, and the expected market premium is 10%. The beta of the firm is 1.3. Will you take the project? Why?

Financial Management, Finance

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