SFE Inc. has 1 million shares of common stock outstanding at a book value of $40 per share. The stock trades for $50 per share. It also has $10 million in face value of debt (corporate bonds of 5 years with coupon rate 10.4%, paid semi-annually) that trades at 110% of face value. The company’s common stock has abeta of 1.2. Treasury bills yield 2% and the market return is 10%. The corporate tax rate is 35%.
a) What is the total market value of equity?
b) What is the total market value of debt?
c) What is its ratio of debt to total firm value in the market-value driven capital structure?
d) What is the (annualized) before-tax cost of debt?
e) What is the after-tax cost of debt?
f) What’s the cost of equity?
g) What’s the after-tax WACC?
h) SFE is considering a project that costs $500,000 today. The project returns$150,000 each year, for the next five years. What is the NPV of the project?