Question

Kirksville Inc. has 1,500 bonds outstanding that are selling for $932 each. The bonds carry a...

Kirksville Inc. has 1,500 bonds outstanding that are selling for $932 each. The bonds carry a 5.0 percent coupon, pay interest semi-annually, and mature in 12.5 years. The company also has 11,500 shares of 6% preferred stock at a market price of $30 per share. This month, the company paid an annual dividend in the amount of $1.50 per share. The dividend growth rate is 4.0 percent. The common stock is priced at $30 a share and there are 35,500 shares outstanding. The company is considering a project that is equally as risky as the overall company. This project has initial costs of $600,000 and operating cash flows of $150,000 a year for the next 10 years and salvage value of $15,000 at the end of 10 years. The initial costs will be financed externally with the flotation costs of 6%. The net working capital (NWC) is expected to increase by $10,000 a year until the end of the project life. The project will be depreciated straight-line to zero over the project’s 10-year life. The tax rate is 20%.

  1. (15 points) What is Kirksville’s weighted average cost of capital?
  1. (10 points) What is the net present value (NPV) of this project? Should you accept the project? Explain why.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Anchor Inc. has 1,000 bonds outstanding that are selling for $911.66 each. The bonds carry a...
Anchor Inc. has 1,000 bonds outstanding that are selling for $911.66 each. The bonds carry a 6.0 percent coupon, pay interest semi-annually, and mature in 14 years. The common stock is priced at $40 a share and there are 40,000 shares outstanding. This year, the company paid an annual dividend in the amount of $2.00 per share. The dividend growth rate is estimated to be 5.0 percent indefinitely. The company is considering a project that is equally as risky as...
) Kirksville Inc. has 1,000 bonds outstanding that are selling for $911.66 each. The bonds carry...
) Kirksville Inc. has 1,000 bonds outstanding that are selling for $911.66 each. The bonds carry a 6.0 percent coupon, pay interest semi-annually, and mature in 14 years. The common stock is priced at $40 a share and there are 40,000 shares outstanding. This year, the company paid an annual dividend in the amount of $2.00 per share. The dividend growth rate is estimated to be 5.0 percent indefinitely. The company is considering a project that is equally as risky...
Company has 60,000 bonds with 30-year life outstanding, 15 years until maturity. The bonds carry a...
Company has 60,000 bonds with 30-year life outstanding, 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $874.78. You have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90. Any new issues of preferred stock would incure a $3.00 per share flotation cost. The company has 5 million shares of common stock outstanding with a currently price of $14 per share. The stock exhibits...
Phillips Equipment has 80,000 bonds outstanding that are selling at par. Bonds with similar characteristics are...
Phillips Equipment has 80,000 bonds outstanding that are selling at par. Bonds with similar characteristics are yielding 7.5 percent. The company also has 750,000 shares of 7 percent preferred stock and 2.5 million shares of common stock outstanding. The preferred stock sells for $65 a share. The common stock has a beta of 1.34 and sells for $42 a share. The cost of equity is 14.06 percent. The corporate tax rate is 38 percent. What is the firm's weighted average...
Apisco Tiger Inc. has 66,000 bonds outstanding that are selling at par. The face value of...
Apisco Tiger Inc. has 66,000 bonds outstanding that are selling at par. The face value of each bond is $1,000. Bonds with similar characteristics have yield to maturity of 6.5 percent. The company also has 600,000 shares of preferred stock and 2.5 million shares of common stock outstanding. The preferred stock sells for $40 a share and pays annual dividends of $3.20 per share. The common stock has beta of 1.25 and sells for $44 a share. The risk free...
Dick’s Construction Company has 70,000 bonds outstanding that are selling at par value of $1,000 each....
Dick’s Construction Company has 70,000 bonds outstanding that are selling at par value of $1,000 each. The bonds yield 7 percent. The company also has 4 million shares of common stock outstanding selling currently at $20 per share. Dick’s stock has an expected return of 10%. Dick’s tax rate is 21 percent. What is Dick’s percent weight of financing with DEBT?
8. Roll Tide, Inc. has 10,000 shares of common stock outstanding at a price of $18...
8. Roll Tide, Inc. has 10,000 shares of common stock outstanding at a price of $18 a share. The firm’s beta is 1.3 and the market risk premium is 6.5%. The Treasury bill rate is 3.5%. There are 9,000 shares of preferred stock outstanding at a price of $22 a share; each quarterly dividend payment on preferred stock is $0.45. Roll Tide’s has 400 bonds 15 year bonds which have 6 years left to maturity. They pay a coupon rate...
1. The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity....
1. The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $874.78. 2. You also have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00. 3. The company has 5 million shares of common stock outstanding with a currently price of $17.00 per share. The stock exhibits a constant growth rate of 10 percent....
Problem 3 (10 marks) The Smith Company has 10,000 bonds outstanding. The bonds are selling at...
Problem 3 The Smith Company has 10,000 bonds outstanding. The bonds are selling at 102% of face value, have a 8% coupon rate, pay interest annually, mature in 10 years, and have a face value of $1,000. There are 500,000 shares of 9% preferred stock outstanding with a current market price of $91 a share and a par value of $100. In addition, there are 1.25 million shares of common stock outstanding with a market price of $64 a share...
The capital structure of a company consists of debt and equity. The firm has 100,000 bonds...
The capital structure of a company consists of debt and equity. The firm has 100,000 bonds outstanding that are selling at par value. The par value of each bond is $1,000. Bonds with similar characteristics are yielding a before-tax return of 8 percent. The company also has 10 million shares of common stock outstanding. The stock has a beta of 1.5 and sells for $30 a share. The return on U.S. Treasury bills is 4 percent and the market rate...