Mistletoe Unlimited has 1100 bonds outstanding that are selling for $992 each.
The bonds carry a 6.0 percent coupon pay
interest semi-annually and mature in 7.5 years. The company also has 9500 shares of 5% preferred stock at a market price of $40 per share. This month the company paid an annual dividend in the amount of $1.20
per share. The dividend growth rate is 5.0 percent. The common stock
is priced at $30 a share and there are 34500 shares outstanding. The company is considering a project that is
equally as risky as the overall company. This project has initial costs of $630000 and operating cash flows of
$150000 a year for the next 10 years and salvage value of $10000 at the end of 10
years. No change in the NWC. The project will be depreciated straight-line to zero over the project%u2019s
10-year life. The tax rate is 34%.
A.(10 points) What is Mistletoe%u2019s weighted average cost of capital?
B.(4 points) What is the net present value (NPV)
of this project? Should you accept the project? Explain why.