Calculate the WACC rate
Bonds $4,000,000
Preferred Stock $2,000,000
Common Stock $6,000,000 Sell Bonds paying /yr 7% Coupon rate $73.50
Floatation Costs for Bonds 4% of Market Price $1,050
Preferred Stock Paying $2 can be sold for $25
Cost of issuing these shares $3
Common Stock Selling $55 Paid Dividend $3 expect to grow 10%
Floatation Costs for C Stock: $5 /share
Companies Tax Rate 30% Required Return = Initial Dividend + Growth Rate in % (market price - floatation costs)

Floatation Costs = Underwriting Costs + Administrative Costs
Before Tax cost of Debt = rate of return a firm must pay on new borrowing

Cost of Bonds 7.39% Cost of Preferred Stock Rp = Dp/Np 9.09% Cost of Preferred Stock Rs = D1/P0 + g 16.00%

ABBREVIATED CASH FLOW STATEMENT

year Cash Flow from operations Capital Expenditures Free Cash Flow % change 2008 $70,932 $(710) $71,642 -
2009 $133,164 $10,974 $122,190 71%
2010 $107,691 $14,100 $93,591 -23%
2011 $147,454 $35,758 $111,696 19%
2012 $122,447 $16,599 $105,848 -5%
2013 $131,682 $22,378 $109,304 3% average 16% DISCOUNTED CASH FLOW
Annual discount rate 3.1%
Cash flow growth rate after year 5 16.1% Return from 1st yr $70,932
Return from 2nd yr $133,164 20 Year T-Bill 3%
Return from 3rd yr $107,691
Return from 4th yr $147,454
Return from 5th yr $122,447
Return from 6th yr $142,199
Return from 7th yr $165,138
Return from 8th yr $191,777
Return from 9th yr $222,713
Return from 10th yr $258,639
Return from 11th yr $300,361
Return from 12th yr $348,814
Return from 13th yr $405,082
Return from 14th yr $470,427
Return from 15th yr $546,313
Return from 16th yr $634,440
Return from 17th yr $736,784
Return from 18th yr $855,637
Return from 19th yr $993,662
Return from 20th yr $1,153,953

Residual discounted cash flow after year 20 $20,214,044.55

Net Present Value of a Debt Free Firm $25,389,663.07

a Removal costs $5,000 Tax shield @ 45% $2,250 Removal costs net of tax effect $2,750

b Depreciation tax shield Year Depreciation - new equipment Tax shield @45% 1 $40,000 $18,000 2 $70,000 $31,500 3 $30,000 $13,500 4 $30,000 $13,500 5 $30,000 $13,500 $90,000

c Foregone tax benefit of old equipment Years Depreciation - new equipment Tax