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Bob's is a retail chain of specialty hardware stores. the firm has 18,000 shares of stock outstanding that are currently valued at $82 a share and provide a rate of return of 13.2 percent. the firm al
Bob's is a retail chain of specialty hardware stores. the firm has 18,000 shares of stock outstanding that are currently valued at $82 a share and provide a rate of return of 13.2 percent. the firm also has 600 bonds outstanding that have a face value of $1,000, a market price of $1,032, and a coupon rate of 7 percent. these bonds mature in 7 years and pay interest semiannually. the tax rate is 35percent. the firm is considering expanding by building a new superstore. the superstore will require an initial investment of $9.3 million and is expected to produce cash inflows of $1.07 million annually over its 10-year life. the risks associated with the superstore are comparable to the risks of the firm's current operations. the initial investment will be depreciated on a straight line basis to a zero book value over the life of the project. at the end of the 10 years, the firm expects to sell the superstore for an aftertax value of $4.7 million. should the firm accept or reject the superstore project and why?
