Assume the following investment opportunity. The company has constant leverage (debt to assets) of50%50%, the cost of
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Assume the following investment opportunity. The company has constant leverage (debt to assets) of50%50%, the cost of equity is 20%20%, and the cost of debt is 7.5%7.5%. The corporate tax rate is 25%25%. Investment takes place today, that is at year 00, and equals 3030. Projections of the opportunity are in the table below. The firm needs to use employees from HQ, which currently had no other project, and earn a yearly salary of 1.51.5 in total.
Year | 1 | 2 | 3 | 4 | 5 |
---|---|---|---|---|---|
EBIT | 1515 | 1717 | 1919 | 2121 | 2323 |
Interests | 0.50.5 | 0.50.5 | 11 | 11 | 1.51.5 |
Depreciation | 2.12.1 | 2.12.1 | 2.12.1 | 2.12.1 | 2.12.1 |
What are the free cash flows for year 44?
a.17.85
b.16.35
c.13.65
d.11.65
Related Book For
Intermediate Financial Management
ISBN: 9780357516669
14th Edition
Authors: Eugene F Brigham, Phillip R Daves
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