Weighted Average Cost of Capital, business and finance homework help

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Scenario: You work for an
investment banking firm and have been asked by management of Vestor
Corporation (not real), a software development company, to calculate its
weighted average cost of capital, to use in evaluating a new company
investment. The firm is considering a new investment in a warehousing
facility, which it believes will generate an internal rate of return of
11.5%. The market value of Vestor’s capital structure is as follows:

Source of Capital

Market Value

Bonds

$10,000,000

Preferred Stock

$2,000,000

Common Stock

$8,000,000

To finance the investment, Vestor has
issued 20 year bonds with a $1,000 par value, 6% coupon rate and at a
market price of $950. Preferred stock paying a $2.50 annual dividend was
sold for $25 per share. Common stock of Vestor is currently selling for
$50 per share and has a Beta of 1.2. The firm’s tax rate is 34%. The
expected market return of the S&P 500 is 13% and the 10-Year
Treasury note is currently yielding 3.5%.

Determine what discount rate (WACC) Vestor should use to evaluate the warehousing facility project.

Assess whether Vestor should make the warehouse investment.

Prepare your analysis in a minimum of 700 words in Microsoft® Word.

Use Microsoft® Word tables in the presentation if you choose.

Show all calculations and analysis in the presentation.

Format assignment consistent with APA guidelines.

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