MIni Case #3 - project Analysis v2.docx - Heather Wickware...

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Heather Wickware Mini case #3- Project Analysis Instructions: Answer all 4 questions and submit answers through blackboard prior to the due date to receive full credit. You will receive 6 points for each correct answer, and 1 point for answering all 4 questions correctly, for a total of 25 points. Case Narrative: The firm’s tax rate is 35%. The company has $2,000,000 in annual sales, and annual fixed expenses of $1,100,000 and $500,000 in variable expenses. There was an initial investment in the firm of $1,500,000, which will be depreciated straight-line over 10 years. The project is expected to last 10 years. The firm has a Capital Structure as follows: 1. The market value of the bonds is $2,000,000. 2. The market value of the Preferred Stock is $1,000,000. 3. The market value of the Common stock is $7,000,000 4. The cost of the preferred stock is 4%, the cost of the common stock is 6%, the cost of the bonds is 8%. 1. What is the firm’s WACC? 9.8% WAAC = D/V (1-tax rate)(r d ) + E/V(r e ) + P/V(r
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