5 pts Question 5 Mullen Group is considering adding another

5 pts Question 5 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 flow 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 will not be issuing any new st ock. Whet 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 5 pts DI Question 6 Amber Company is considering a one-year project that requires an initial investment of $500,000. However, to raise this capital, the company will incur flotation costs that are 2% of the initial investment amount. At the end 0a0 80 F6 F7 F8 FS 3

Solution

Debt = 0.4, Preferred Stock = 0.15 and Common Stock = 0.45, Cost of Debt = 6% , Cost of Preferred Stock = 7 % and Cost of Retained Earnings = 12 %

Target WACC = 0.4 x 6 + 0.15 x 7 + 0.45 x 12 = 8.85 %

Initial Outlay = $ 30000 and After-Tax Cash Flows (ATCF) = $ 7810 for five years

PV of ATCFs = 7810 x (1/0.0885) x [1-{1/(1.0885)^(5)}] = $ 30496.78

Project NPV = 30496.78 - 30000 = $ 496.78 approximately.