Your firm has debentures with a coupon of 5%, a maturity of 5 years, and a market value of 975 per bond. It has preferred stock that pays a 3.00 dividend and trades at 35 per share. It has common stock that paid a dividend or 2.00 and has a growth rate of 5%. The tax rate is 40% for marginal income. Its price is 40.00 per share. The expected dividend next year is 2.00 and the growth rate is for the income. What is the weighted average cost of capital for the firm? Use that rate in determining whether to make the below investment and say why or why not. Invest in a machine with a 3-year useful life with a cost of 3,000,000 and a scrap value of 1,000,000. Sales will increase by 2,000,000 per year and there will be no additional accounts receivable but 400,000 increase in inventory. Cost of goods sold will increase by 500,000 per year and SG&A will increase by 30,000 per year. Your tax rate is 40%.
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