Should we proceed with this project? Initial Investment = $5,000,000 Taxes = 35% Beta = 1.27 T note = 2.4% Dividends paid = $1,000,000 with a payout ratio of 33% Estimated sales are: $2,500,000 for year 1, $4,000,000 for year 2, $7,000,000 for year 3, $6,000,000 for years 4 & 5, $4,000,000 for year 6, and $1,500,000 with a sale of the asset in year 7 for $250,000. Variables costs are 52% Fixed costs = $400,000 per year The company’s benchmark is the Wilshire 5000, which is expected to return 11% next year. 250,000 shares of common stock quoted today at $25, paying a dividend of $1.20 per share. 100,000 shares of preferred stock quoted today at $45, paying a dividend of $2.50 per share. The company is paying on 20-year 4.75% loan issued 5 years ago with today’s principal =$2,750,000 Two bonds are outstanding: 1) 20-year bond issued 5 years ago with a coupon rate of 4.25% with today’s market rate = 3.75%, there are 2,000 bonds. 2) 15-year bond issued 3 years ago with a coupon rate of 3.88% with today’s market rate = 3.6%, there are 2,500 bonds. Companies estimate its return on equity is 12%.
Should we proceed with this project?
Initial Investment = $5,000,000
Taxes = 35%
Beta = 1.27
T note = 2.4%
Dividends paid = $1,000,000 with a payout ratio of 33%
Estimated sales are: $2,500,000 for year 1, $4,000,000 for year 2, $7,000,000 for year 3, $6,000,000 for years 4 & 5, $4,000,000 for year 6, and $1,500,000 with a sale of the asset in year 7 for $250,000.
Variables costs are 52%
Fixed costs = $400,000 per year
The company’s benchmark is the Wilshire 5000, which is expected to return 11% next year.
250,000 shares of common stock quoted today at $25, paying a dividend of $1.20 per share.
100,000 shares of
The company is paying on 20-year 4.75% loan issued 5 years ago with today’s principal =$2,750,000
Two bonds are outstanding:
1) 20-year bond issued 5 years ago with a coupon rate of 4.25% with today’s market rate = 3.75%, there are 2,000 bonds.
2) 15-year bond issued 3 years ago with a coupon rate of 3.88% with today’s market rate = 3.6%, there are 2,500 bonds.
Companies estimate its
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