The management of Blue Thumb Tools believes the firm’s current capital structure is optimal and intends...

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The management of Blue Thumb Tools believes the firm’s currentcapital structure is optimal and intends to maintain it in thefuture. Blue Thumb’s bonds are selling for $950 each. Its commonstock is selling for $37 a share and its preferred stock is sellingfor $88 per share. There are 50,000 bonds outstanding, 10,000,000shares of stock and 3,000,000 shares of preferred stockoutstanding, respectively.
What are the current weights of Blue Thumb’s capitalstructure?
Blue Thumb’s stock has a beta of 1.2. The current t-bill yield(risk-free rate,Rf) is 5.5% and the expected return on the marketportfolio (Rm) is 11.5%. The company’s preferred stock pays an$8.50 per share dividend each year and the price of it is $88 pershare. The yield to maturity of Blue Thumb’s bonds is currently9.7%.
If Blue Thumb is in the 30% tax bracket, what is the company’sWACC?
Suppose Blue Thumb Tools is considering the introduction of anew, heavier hammer to be used for driving spikes. The new hammerwill cost $490,000. The cost will be depreciated straight-line tozero over the project’s five-year life, at the end of which the newhammer can be scrapped for $40,000. The new hammer will save thefirm $146,000 per year in pretax operating costs, and it requiredan initial investment in net working capital of $35,000. The taxrate of the firm is 30%.
What are the cash flows of firm’s new project (using a timeline)?
What is the net present value of this project (list yoursetups)?
What is the IRR of this project (list your setups)?

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The management of Blue Thumb Tools believes the firm’s currentcapital structure is optimal and intends to maintain it in thefuture. Blue Thumb’s bonds are selling for $950 each. Its commonstock is selling for $37 a share and its preferred stock is sellingfor $88 per share. There are 50,000 bonds outstanding, 10,000,000shares of stock and 3,000,000 shares of preferred stockoutstanding, respectively.What are the current weights of Blue Thumb’s capitalstructure?Blue Thumb’s stock has a beta of 1.2. The current t-bill yield(risk-free rate,Rf) is 5.5% and the expected return on the marketportfolio (Rm) is 11.5%. The company’s preferred stock pays an$8.50 per share dividend each year and the price of it is $88 pershare. The yield to maturity of Blue Thumb’s bonds is currently9.7%.If Blue Thumb is in the 30% tax bracket, what is the company’sWACC?Suppose Blue Thumb Tools is considering the introduction of anew, heavier hammer to be used for driving spikes. The new hammerwill cost $490,000. The cost will be depreciated straight-line tozero over the project’s five-year life, at the end of which the newhammer can be scrapped for $40,000. The new hammer will save thefirm $146,000 per year in pretax operating costs, and it requiredan initial investment in net working capital of $35,000. The taxrate of the firm is 30%.What are the cash flows of firm’s new project (using a timeline)?What is the net present value of this project (list yoursetups)?What is the IRR of this project (list your setups)?