Mistletoe Unlimited has 1,200 bonds outstanding that are selling for $992 each. The bonds carry a 5% coupon, pay interest semi-annually, and mature in 9 years. The company also has 9,500 shares of 5% preferred stock at a market price of $40 per share. This month, the company paid an annual dividend in the amount of $1.50 per share. The dividend growth rate is 5%. The common stock is priced at $30 a share and there are 35,000 shares outstanding. The company is considering a project that is equally as risky as the overall company. This project has initial costs of $650,000 and operating cash flows of $150,000 a year for the next 10 years and salvage value of $10,000 at the end of 10 years. The company also needs an initial decrease in inventory of $50,000, all of which will be recovered when the project is completed. The project will be depreciated straight-line to zero over the project's 10-year life. The tax rate is 34%.
What is Mistletoe's weighted average cost of capital?
What is the net present value (NPV) of this project?
Should you accept the project? Explain why.
Please show your work. Thank you!