Gordon's Gin has equity with a book value of $30 million and a market value of $60 million. It has debt with a market value of $10 million. T bills yield 4% per year. The market risk premium is estimated to be 9%. The beta of Gordon's Gin is 1.5. Assume no taxes. Assume that the company's debt is risk-free. a) What is the firm's debt-equity ratio? b) What's the firm's weighted average cost of capital? c) What would be the NPV of a project that costs $1m upfront, produces a CF of $200,000 at the end of year one, $300,000 at the end of year two, and an annual cash flow of $100,000 from the end of year 3 forever?

Answer rating: 100% (QA)

To answer the questions we need to calculate the debtequity ratio the weighted average cost of capital WACC and the net present value NPV of the proje... View the full answer