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| Teaching Since: | May 2017 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
3. Simms Enterprises is attempting to evaluate the possibility of investing $85,000 in a machine having a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown below. Simms has a capital structure containing 40% debt, 20% preferred stock, and 40% common stock. The firmAc€?cs outstanding bonds have an $80 annual coupon, a par-value of $1,000, 10 years left to maturity, and a current price of $1,250. The firmAc€?cs annual preferred stock dividend is $4.00 and their preferred shares are currently selling for $20. The firmAc€?cs common stock has a beta of 1.3. The risk-free rate is 3% and the required return on the market is 9%. The firm faces a tax rate of 40%.
CF1 $18,000 CF2 $22,500 CF3 $27,000 CF4 $31,500 CF5 $36,000
a. What is the firmAc€?cs wacc? b. What is the projectAc€?cs payback? c. What is the projectAc€?cs discounted payback? d. What is the projects net present value? e. What is the internal rate of return on this investment? f. What is the projectAc€?cs modified internal rate of return? g. Should you accept this project? Why?
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