Acme Corp has a target debt/equity ratio of 0.30. It was $300 million in bonds outstanding...

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Acme Corp has a target debt/equity ratio of 0.30. It was $300 million in bonds outstanding with a yield of 6% and 50 million shares of stock outstanding with a current market price of $20 per share. The company's beta is 1.18 and the risk-free rate of interest is 4% with a market risk premium of 6%. The firm has a tax rate of 25%. The company is looking to raise $200 million to build a second factory. The new factory will increase output substantially. The table below shows the anticipated cash flows generated from the new factory including a salvage value in year 5. What is the payback for this project? Year Cash Flow ($mill) -200 1 35 2 45 55 4 65 95 4 Years 3.75 Years 3.5 Years 4.25 Years Acme Corp has a target debt/equity ratio of 0.30. It was $300 million in bonds outstanding with a yield of 6% and 50 million shares of stock outstanding with a current market price of $20 per share. The company's beta is 1.18 and the risk-free rate of interest is 4% with a market risk premium of 6%. The firm has a tax rate of 25%. The company is looking to raise $200 million to build a second factory. The new factory will increase output substantially. The table below shows the anticipated cash flows generated from the new factory including a salvage value in year 5. What is the payback for this project? Year Cash Flow ($mill) -200 1 35 2 45 55 4 65 95 4 Years 3.75 Years 3.5 Years 4.25 Years

Answer rating: 100% (QA)

option 1 4 years Year Cash flows Cumulative cash ... View the full answer