ABC Co has a target debt ratio of 40% and it keeps this target. The cost...
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ABC Co has a target debt ratio of 40% and it keeps this target. The cost of equity is 10% and the cost of debt is 4%. It is considering expanding its business and requires $1 million investment. After expansion, ABC expects additional free cash flows of $0.2 million per year in perpetuity. ABC decides to issue equity to finance this expansion. The equity issuance cost is 5%. The corporate tax rate is 30%. Assume that ABC will maintain the target debt ratio. What's the NPV of the expansion project? ABC Co has a target debt ratio of 40% and it keeps this target. The cost of equity is 10% and the cost of debt is 4%. It is considering expanding its business and requires $1 million investment. After expansion, ABC expects additional free cash flows of $0.2 million per year in perpetuity. ABC decides to issue equity to finance this expansion. The equity issuance cost is 5%. The corporate tax rate is 30%. Assume that ABC will maintain the target debt ratio. What's the NPV of the expansion project?
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To calculate the Net Present Value NPV of the expansion project we need to follow these steps 1 Calc... View the full answer
Related Book For
Foundations Of Finance
ISBN: 9780135160619
10th Edition
Authors: Arthur J. Keown, John H. Martin, J. William Petty
Posted Date:
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