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Basically I want to know how to use these numbers to find the answer,

The CFO of the Company XYZ has determined to take the following ways of financing to support the firm’s operation and growth: 40% of funding coming from the issuance of bonds, 25% from preferred stock, and 35% from common equity.

For doing so, the firm issued a 20-year, 10% semiannual coupon bond sells for $1,160, a preferred stock with the annual fixed dividend payment of $10 and market price of $110.10, and common equity with non-constant dividend of $6 at the end of year 1 with growth rate of 5% and market price of $55. Given the 40% of corporate tax rate and 3% of the flotation cost for issuance of common equity, what is the Company XYZ’s WACC?

With the funds raised, the Company XYZ plans to purchase a machine that cost $150,000, but can generate the following cash flow: $30,000, $50,000, $40,000, $35,000, $50,000, in the next 5 years. Using NPV, IRR, MIRR and discounted payback (using 4 years as the bench mark) to determine if the project should be taken. Use the WACC calculated from (1).

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92353852

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