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Matt McGinnis mmginn4 Matt Marcinkowski 2 PM Friday Sam Phelps sphelps4 Matt Marcinkowski 2 PM Friday CASE 1 Part 1 1 D= 31.5 w(debt)= 19.86% P= 16.1 w(common equity)= 10.15% E= 111 w(preferred stock)= 69.99% V= 158.6 2 before tax= 6% after tax= 3.61% 3 Dividend Payment= 1.75 Cost of Preferred Stock= 7.61% 4 (CAPM)= 10.92% 5 D(1)= 1.07 Cost of Retained Earnings= 10.92% 6 WACC= 9.13% Part IIa: YEAR MORE HAPPY MART ELECTRON GROVE WELL-MART 0 -500 -600 -400 1 150 120 75 2 150 140 80 3 120 180 85 4 100 170 90 5 100 160 90 6 100 150 90 1 IRR More Happy Mart 12.76% Electron 13.21% Well-Mart 7.17% 2 NPV More Happy Mart $50.01 Electron $78.00 Well-Mart ($23.84) 3 Accept Happy Mart and Electron Grove if independent 4 Use only for average risk projects Part IIb: 1 r(e)= 18.20% WACC= 14.23% 2 r(e)= 6.76% WACC= 6.22% 3 NPV Electron grove ($17.22) Well-Mart $12.35 4 We would recommend Happy Mart and Well-Mart because they both have a positive NPV. We would not recommend Electron Grove because of its negative NPV. The reccommendations are different from Part IIa because the WACC's changed. This produced different NPV's.
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