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borteleto borteleto
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5 years ago
Valley Flights, Inc. has a capital structure made up of 40% debt and 60% equity and a tax rate of 30%. A new issue of $1,000 par bonds maturing in 20 years can be issued with a coupon of 9% at a price of $1,098.18 with no flotation costs. The firm has no internal equity available for investment at this time, but can issue new common stock at a price of $45. The next expected dividend on the stock is $2.70. The dividend for the firm is expected to grow at a constant annual rate of 5% per year indefinitely. Flotation costs on new equity will be $7.00 per share. The company has the following independent investment projects available:

ProjectInitial OutlayIRR
1$100,00010%
2  $10,008.5%
3 $50,00012.5%

Which of the above projects should the company take on?
A) Project 3 only
B) Projects 1 and 2
C) Projects 1 and 3
D) Projects 1, 2 and 3
Textbook 
Foundations of Finance

Foundations of Finance


Edition: 9th
Authors:
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Marc18Marc18
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borteleto Author
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#2
5 years ago
I'm still confused, but thanks for answering correctly
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