5 pts Question 5 Mullen Group is considering adding another division that requir

Question

5 pts Question 5 Mullen Group is considering adding another division that requires a cash outlay of $30,000 and is expected to generate $7,770 in after-tax cash flows 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 696, the cost of preferred is 7%, and the cost of retained earnings is 12%. The firm will not be issuing any new stock. What 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.

Explanation / Answer

Excel formula fore NPV calculation =
=J13+NPV(0.0885,J14:J18)
J13 = -30,000, 0.0885 is the WACC and J14 to J18 are $7,770 cash flows for 5 years

Weight Cost of capital Weighted cost Debt 0.4 6 2.4 Preferred 0.15 7 1.05 CE 0.45 12 5.4 WACC 8.85 Year Cash flow 0 $     -30,000.00 1 $         7,770.00 2 $         7,770.00 3 $         7,770.00 4 $         7,770.00 5 $         7,770.00 $             340.58

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