Burns and Nuble is considering an investment in a project which would require an initial outlay of $320,000 and produce expected cash flows in years 1-5 of $87,385 per year. You have determined that the current after-tax cost of the firms capital (required rate of return) for each source of financing is as follows:
cost of long-term debt 8%
cost of preferred stock 12%
cost of common stock 16%
A detailed calculation of the net present value for the project has been provided. The solution provided is in an excel format with formulas for your reference as well.