You try to evaluate an investment project for a company. A firm uses $38 million of debt and $15 million of preferred stock. The current market price of common stock is $20 with 4,125,000 shares outstanding, which it has used recently to finance in a number of its recent operating asset purchases. If the before-tax cost of debt is 8% and its cost of preferred stock is 10%. The risk free rate is assume to be 5%, while the market risk premium is 8%, with an above market level firm beta of 1.25 (slightly more volatile than the market). Assume the corporate tax rate for this firm is 35%. a. Based on the information given, compute the WACC for the company.
b. If an investment project generates a return of 11% and has similar risk level as the overall company, would you accept this project? Why or why not?

a) total debt = $38 million

after tax cost of debt = 8% x (1 - 35%) = 5.2%

total preferred stocks = $15 million

cost of preferred stock = 10%

total common stocks = 4,125,000 x 20% = $82,500,000

Re = 5% + (1.25 x 8%) = 15%

weight of debt = 38 / 135.5 = 28.04%

weight of preferred stocks = 15 / 135.5 = 11.07%

weight of common stocks = 60.89%

WACC = (60.89% x 15%) + (11.07% x 10%) + (28.04% x 5.2%) = 11.7%

b) The project should be rejected because 11% is lower than the company's WACC (11.7%)

answer; (d) i believe that the correct answer is ; /// a new invention lowers the cost of production;

month 1 start amount =$3287.90 interest=(3287.90x0.0145/12)3.97 total to pay=$3291.81 paid =$1200 balance =$2,091.87

month 2 starting amount= $2,091.87 interest =$25.28 total to pay =$2117.15 paid =$1200 balance $917.15

month 3 starting amount =$917.15 interest =$11.08 total to pay =$928.23 paid =$928.23 balance =$0 total to pay 1200+1200+928.23 = $3328.23 it will take 3 months to pay a total of $3328.23