Ernst and Frank Companies has a capital structure which is based on 45 percent debt, 10 percent preferred stock, and 45 percent common stock. The after-tax cost of debt is 5 percent, the cost of
Preferred is 9 percent, and the cost of common stock is 13 percent. The company is considering a
Project that is equally as risky as the overall company. This project has initial costs of $630,000 and
Cash inﬂows of $450,000 a year for two years. What is the net present value of this project?

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The Answer of Ernst and Frank Companies has a capital structure which is based on 45 percent debt, 10 percent preferred stock, and 45 percent common stock. The after-tax cost of debt is 5 percent, the cost of
Preferred is 9 percent, and the cost of common stock is 13 percent. The company is considering a
Project that is equally as risky as the overall company. This project has initial costs of $630,000 and
Cash inﬂows of $450,000 a year for two years. What is the net present value of this project?

Ernst and Frank Companies Has a Capital Structure Which Is