A company plans to spend $16.725 million to invest in a scale-enhancing project. The initial capital...

 

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A company plans to spend $16.725 million to invest in a scale-enhancing project. The initial capital outlay will be financed using equal proportions of debt and equity. The project is expected to generate annual unlevered cash flows of $2.5 million in perpetuity. The firm's target debt-value ratio is 40%, its pre-tax cost of debt is 7%, and its tax rate is 21%. Using an equity beta of 1.5, a risk-free rate of 2%, and an expected market return of 12%, what is the NPV of the project according to the WACC approach? A company plans to spend $16.725 million to invest in a scale-enhancing project. The initial capital outlay will be financed using equal proportions of debt and equity. The project is expected to generate annual unlevered cash flows of $2.5 million in perpetuity. The firm's target debt-value ratio is 40%, its pre-tax cost of debt is 7%, and its tax rate is 21%. Using an equity beta of 1.5, a risk-free rate of 2%, and an expected market return of 12%, what is the NPV of the project according to the WACC approach?

Answer rating: 100% (QA)

Calculate the NPV of the project using the Weighted Average Cost of Capital WACC approach Where Init... View the full answer