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WACC and NPV,IRR calculations

Boston Inc is looking to raise Capital for project, and they have a few options in mind. You are given the following information to help you determine the WACC.

1. Boston Inc currently has outstanding 12% Coupon bonds that are selling for $1250.00. They pay interest Semi-Annually They have a par value of $1000, and they mature in 10 Years.

2. They have preferred stock that has a par value of $75.00 and they pay a 7.5% dividend. This stock is currently selling for $82.00.

3. Their dividends, and stock price are expected to grow at 8% per year in the future. Their common stock is currently selling for $32.00 a share, and its last dividend was $2.50. Their common stock has a beta of 1.3. The Risk Free rate is 5.2%. The expected market return is 14.12%.

Calculate the WACC for Boston Inc assuming they have a combined Federal and State tax rate of 40%. For the cost of common equity I want you to take the average return of the following two methods: DCF, and CAPM. Their target capital structure is 38% Debt, 22% Preferred Stock, and 40% Common Equity.
What is their WACC?

The two projects that they are looking at are creatively called Project A which has an initial cost of $57,500, and its expected net cash inflows are $11,500 for the next 8 years, and Project B which has an initial Cost of $110,000 and the following cash flows: Years 1-3 $20,000. Years 4-7 $28,000 Years 8 $18,000. Use the WACC from question 1.
What is the NPV, IRR, MIRR, PI, Payback, and Discounted Payback.

Another option for Boston Inc is a project that has a forecasted sales revenue of $30000 and is estimated to grow by 3% over the life of the project which is 3 years. The initial cost of the project is $50,000 and will be depreciated using the MACRS method over its 3 year life. The equipment could be sold for $10,000 at the end of year 3. The MACRS rates are (.33, .45, .15 and .07). The marginal tax rate is 35%, and their cost of capital is 12%. Calculate the project's NPV, and IRR. Use the following to fill in the information.

Solution Summary

The solution explains how to calculate the WACC and use it to calculate the NPV for a project