Question

Stark Enterprises is considering a new project to defend Earth from future attacks.

The Asgardian equipment called bifrost costs? $2,000,000.

The bifrost will produce a stream of future cash flows as follows.

?Year USD

?2019 700,000

?2020 700,000

?2021 700,000

?2022 500,000

?2023 500,000

?2024 500,000

?2025 500,000

?2026 500,000

?2027 500,000

?2028 500,000

?2029 500,000

?2030 800,000

?2031 800,000

?2032 800,000

?2033 800,000

Stark Enterprises has following capital structure.

?35% Debt,? 25% preference shares and rest in common equity.

Stark enterprises has? $1,000, 20 year bond with? 8% coupon having

?semi-annual payments sold for? $1,021.

Stark enterprises issued preference shares of par value? $100 with? 10% annual

dividend. These were sold at? $3 premium. The underwriting fees were? $7 per share.

The effective tax rate is? 28%.

Stark Enterprises has beta of 1.37 when risk free rate is? 4% and Market return is? 12%.

question:

Calculate? Pre-tax cost of debt

Calculate? After-tax cost of debt

Calculate cost of preference shares

Calculate cost of common equity

Calculate Weighted Average Cost of Capital? (WACC)

Calculate Net Present Value? (NPV) of the project.? (Use WACC as the discounting? rate)

Please give your recommendation for project using NPV

Answer 1