Question

Hall Corp. has 25,000 shares of common stock outstanding with a market price of $32 a share and an expected dividend yield of 5.7 percent.
Dividends increase by 4.2 percent annually.
The firm also has $450,000 of debt outstanding that is selling at 102 percent of par that has a yield to maturity of 6.8 percent.
The tax rate is 35 percent.
The firm is considering a project that has the same risk level as the firm's current operations, an initial cost of $328,000 and cash inflows of $52,500, $155,000, and $225,000 for Years 1 to 3, respectively.
What is the NPV of the project?

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The first step is to find the weighted average cost of capital as that would be used as discount rate for the project.

Cost and market value of equity

Given
Current market price $32
Shares outstanding 25000
Growth rate 4.20%
Dividend yield 5.70%...

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