The firm is considering replacing their computer system. The incremental cash flow from assets for this project are an $80,000 initial investment and and the expected cash flows are $36,000 per year for the next 3 years. Based on the IRR, should you accept or reject the project? Note: You have already calculated the WACC in the previous question. This is here as a reference in case you need it: Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30 percent.
The firm is considering replacing their computer system. The incremental cash flow from assets for this project are an $80,000 initial investment and and the expected cash flows are $36,000 per year for the next 3 years. Based on the IRR, should you accept or reject the project? Note: You have already calculated the WACC in the previous question. This is here as a reference in case you need it: Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30 percent.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The firm is considering replacing their computer system. The incremental cash flow from assets
for this project are an $80,000 initial investment and and the expected cash flows are $36,000
per vear for the next 3 years. Based on the IRR, should you accept or reject the project?
Note: You have already calculated the WACC in the previous question. This is here as a
reference in case you need it: Bluefield Corporation has 6 million shares of common stock
outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and
200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At
present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per
$1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market
return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30
percent.
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