This project requires a $52 million investment immediately and offers a pretax cash flow of $21.6 million at the end of the first year. After that, it will grow at 4% annually for the next 6 years, for a total of 7 years. The unlevered cost of capital is 10%.Suppose that the project is financed with $40 million of debt and $12 million of equity. The plan is to pay down 70% of the debt in equal annual installments over the project’s 7-year life, with a balloon payment of the remainder upon the project’s completion (i.e., this means 10% of the original amount of debt is repaid every year, plus the balloon payment at the end). The interest rate paid on the debt is 7%, and the marginal corporate tax rate is 35%. 

Calculate the value of this project.

Answer rating: 100% (QA)

The value of the project can be calculated by determining the present value of the projects cash flo... View the full answer