There are 1000 common shares outstanding with market price $40 each. Also, they have 100 preferred shares with market value of $50.
There are $50,000 long-term bond trading in market with an average price of $1, 100 and 6 year to maturity, and 8% semiannual coupon.
Common shares of firm have a beta of 1.3.
Risk tree rate is 4% and expected market return is 16%. Preferred stockholders are receiving 1 dollar quarterly dividend.
The project is considered by the financial department to be as risky as me company. The reinvestment risk is assumed to be 15%.