Business, 26.11.2019 07:31 Magalaki713

Travis & sons has a capital structure that is based on 40 percent debt, 5 percent preferred stock, and 55 percent common stock. the pretax cost of debt is 7.5 percent, the cost of preferred is 9 percent, and the cost of common stock is 13 percent. the tax rate is 39 percent. the company is considering a project that is equally as risky as the overall firm. this project has initial costs of $325,000 and annual cash flows of $87,000, $279,000 and $116,000 over the next three years, respectively. what is the net present value of this project? (note: you won’t be required to find the npv for the exam, but i want you to do this homework problem to be sure you understand that the wacc is the appropriate discount rate when evaluating projects).

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