The latest CF is $1,000,000; going up annually by 4% for the next five years. For III, you had bought an asset for $2,000,000 four years ago (life 5 years) and now sell at 50% of the original. The new asset is 30% above the original price of the old asset. Tax rate is 34%.

- WACC: bonds sold at $920. Coupon has 8% annually paid semi. Market price 2% below the coupon. FV $1000

- Preferred stock: $1 on every $18 pref stock. Commission is 5%

- Common stock: Expected dividend is $1.20 per share. Stock price $16 with 3% commission. Growth is 2%

- B/S items: Debt $2M; Pref $1M; Common $3M

Questions:

1. Write down step by step as what to do to decide if this project is good.

A. Initial investment

B. Project your cash flow for the next 5 years

C. Compute the present value in B based on WACC; so compute WACC

D. Cost of debt after tax

E. Cost of preferred

F. Cost common

G. % of each type of capital

H. Final decision

2. Decide if the project is acceptable.