• 100% Satisfaction Guarantee
F. Naz, Chartered Accountant
Category: Homework
Satisfied Customers: 5307
Experience:  Experience with chartered accountancy
20040807
F. Naz is online now

# PNB Industries has 20 million shares of common stock outstanding

PNB Industries has 20 million shares of common stock outstanding with a market price of \$18.00 per share. The company also has outstanding preferred stock with a market value of \$50 million, and 500,000 bonds outstanding, each with face value \$1,000 and selling at 97% of par value. The cost of equity is 15%, the cost of preferred is 12%, and the cost of debt is 8.50%. If PNB's tax rate is 40%, what is the WACC?

Your company has spent \$1,000,000 on research to develop a new computer game. The firm is planning to spend \$500,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total \$75,000. The machine has an expected life of 3 years, a \$100,000 estimated resale value, and falls under the MACRS 5-Year class life. Revenue from the new game is expected to be \$2,000,000 per year, with costs of \$800,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by \$300,000 at the beginning of the project. What will be the net cash flow for year one of this project?

Compute the IRR for Project WOW (below) and decide whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 9 percent.

Time: 0 1 2 3 4 5
Cash flow: -1000 -75 100 100 0 2000

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 2.5 years, respectively.
Time 0 1 2 3 4 5
Cash Flow -125,000 65,000 78,000 105,000 105,000 25,000
Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

please show all work and eplain why or why not