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Question: Basically I want to know how to use these numbers to find the answer, I appreciate it! Thank you

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).

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  • Category:- Basic Finance
  • Reference No.:- M92781844

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