Question 5 5 pts Mullen Group io considering ading another d

Question 5 5 pts Mullen Group io considering ading another division that regulies scash oundyor 3o.000 spd to seneate7820in after tax casehows 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 12%. The firm well. not be issuing any new stock, what is the NPV of this and is expected to generate $7.820 in after-tax cash flows each year for the Your anower thould be between 94 50 and 920.42 rounded to 2 decinal locen with no special charasters places, with no

Solution

a. Calculation of weighted average cost of capital(WACC) Capital component Weight Cost Weighted Cost Debt 40% 6% 2.40% Preferred 15% 7% 1.05% Common Equity 45% 12% 5.40% Total 8.85% b. Calculation of NPV Year Cash flow Discount factor Present Value a b c=1.0885^-a d=b*c 0 $       -30,000      1.0000 $ -30,000.00 1 $           7,820      0.9187 $     7,184.20 2 $           7,820      0.8440 $     6,600.09 3 $           7,820      0.7754 $     6,063.47 4 $           7,820      0.7123 $     5,570.49 5 $           7,820      0.6544 $     5,117.58 Total $         535.83 Thus, NPV is $ 535.83