ANSWER FAST PLEASE. MUST ROUND YOUR ANSWER TO TWO DECIMAL PLACES. D Question 4 5

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ANSWER FAST PLEASE. MUST ROUND YOUR ANSWER TO TWO DECIMAL PLACES.





D Question 4 5 pts Several years ago, the Jakobe Company issued a $1,000 par value, non-callable bond that now has 20 years to maturity and a 7% annual coupon that is paid ser iannually. The bond currently sells for $1065 and the company's tax rate is 40%. What is the con ponent after tax cost of debt for use in the WACC calculation? Your answer should be between 3.34 and 5.43, rounded to 2 decimal places, with no special characters D | Question 5 5 pts Mullen Group is considering adding another division that requires a cash outlay of $30,000 and is expected to generate $7 810 in after-tax cash flows each year for the next five years. The company's target capital structure is 40% debt, 15% preferred, and 45% common equity The after-tax cost of debt is 6%, the cost of preferred is 7%, and the cost of retained earnings is 129. The firm will not be issuing any new stock. What is the NPV of this project? Your answer should be between 94.50 and 920.42, rounded to 2 decimal places, with no special characters

Explanation / Answer

1

After Tax Cost of Debt for WACC = 3.85%

Using financial calculator BA II Plus - Input details:

#

FV = Future Value =

-$1,000.00

PV = Present Value =

$1,065.00

N = Total number of periods = Number of years x frequency =

20

PMT = Payment = Coupon / frequency =

-$70.00

CPT > I/Y = Rate per period or YTM per period =

                     6.414

Convert Yield in annual and percentage form = Yield*frequency / 100 =

6.41%

After Tax Cost of debt = YTM x (1-Tax) = Yield x (1-40%) =

3.85%

------------------

2

NPV = 496.78

WORKING:

Calculation of WACC:

Particulars

Weight

Cost

Weight cost = Weight x Cost

Preferred Share

15.00%

7.00%

1.05%

Equity

45.00%

12.00%

5.40%

Debt

40.00%

6.00%

2.40%

WACC = Total =

8.85%

NPV

Discount rate = WACC = R = 8.85%

Present Values

Year

Cash flows

Discount factor or PV factors = Df = 1/(1+R)^Year

PV of cash flows = Cash flows x Df

0

-$30,000.00

1.000000

-$30,000.00

1

$7,810.00

0.918695

$7,175.01

2

$7,810.00

0.844001

$6,591.65

3

$7,810.00

0.775380

$6,055.72

4

$7,810.00

0.712338

$5,563.36

5

$7,810.00

0.654422

$5,111.04

Total of Present values = NPV =

$496.78

Using financial calculator BA II Plus - Input details:

#

FV = Future Value =

-$1,000.00

PV = Present Value =

$1,065.00

N = Total number of periods = Number of years x frequency =

20

PMT = Payment = Coupon / frequency =

-$70.00

CPT > I/Y = Rate per period or YTM per period =

                     6.414

Convert Yield in annual and percentage form = Yield*frequency / 100 =

6.41%

After Tax Cost of debt = YTM x (1-Tax) = Yield x (1-40%) =

3.85%

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