Suppose Garageband.com has a 28% cost of equity capital and a 10% cost of debt capital....

 

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Suppose Garageband.com has a 28% cost of equity capital and a 10% cost of debt capital. The firm's debt-to-equity ratio is 1.5. Garageband is interested in investing in a telecomm project that will cost $1,000,000 and will provide $600,000 annually for the next 4 years. Given the project is an extension of their current operations, what is the net present value of the this project if the corporate tax rate is 35. D/E = 1.5, D/V = 1.5/2.5, E/V = 1/2.5, r. = 28%, ra = 10% WACC = (1.5/2.5)*0.10*(1-0.35) + (1/2.5) *0.28 = 15.1% FV = 0, PMT= 600,000, n =4, r = 15.1% → PV = 1,709,527.73 NPV = 1,709,527.73-1,000,000.00 = 709,527.73 Take the project Suppose Garageband.com has a 28% cost of equity capital and a 10% cost of debt capital. The firm's debt-to-equity ratio is 1.5. Garageband is interested in investing in a telecomm project that will cost $1,000,000 and will provide $600,000 annually for the next 4 years. Given the project is an extension of their current operations, what is the net present value of the this project if the corporate tax rate is 35. D/E = 1.5, D/V = 1.5/2.5, E/V = 1/2.5, r. = 28%, ra = 10% WACC = (1.5/2.5)*0.10*(1-0.35) + (1/2.5) *0.28 = 15.1% FV = 0, PMT= 600,000, n =4, r = 15.1% → PV = 1,709,527.73 NPV = 1,709,527.73-1,000,000.00 = 709,527.73 Take the project

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Okay lets solve this stepbystep Cost of equity Ke 28 Cost of deb... View the full answer