Fundamentals in Accounting and Finance ACCT 501-1 Final Case study – The JonesTechnologies Inc.Case (JTI) Due date 10/24/19 Jones Technologies Incis thinking about adding a new division to the firm....

Fundamentals in Accounting and Finance ACCT 501-1

Final Case study – The JonesTechnologies Inc.Case (JTI)

Due date 10/24/19

Jones Technologies Incis thinking about adding a new division to the firm. Thenew division will cost $ 50 million and will produce annual profit marginsof$12.5million each year for the next 5years. FirstCalculate WACCs based on book, market, and target capital structures.Second, using the WACC for any of the capital structure, what advise you give to Jones Technologies with regard to adding the new division. Please explain your answer.

The following information was provided for the firm:

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  Jones Technologies Inc (JTI) balance sheetshows a$28million10-yearlong-termdebt with a coupon rate of 8% compounded semi annually. The debt has a total current market value of 26million.

  
  


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  240,000 preferred shares outstanding at $100 par value. The preferred shares payan8.5% semi annual dividend and sells for $90per share.

  
  


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  Retained earnings of$35million.

  
  


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  Tax Rate =40%

  
  


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  The company’s risk in relation to the marketorbetais the same as Net Flix (NFLX).

  
  

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  Bond-Yield Risk Premium =3%

  
  


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  rRF=6%: RPM=5%

  
  


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  The companyrecently decided that its target capital structure should have 35% debt, with the 20% Preferred Stock and 45% Common Equity.

  
  

Please submit your answers typewritten in either Word or Excel. All calculations should be rounded totwo decimal places.