Crypto Inc. considers a major worldwide expansion project. It currently has 35 million outstanding shares trading...

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Crypto Inc. considers a major worldwide expansion project. It currently has 35 million outstanding shares trading at $20 per share. Crypto equity has an estimated beta of 2.0 The risk-free rate is 4%, while the market risk premium is 5%. It also has 300,000 outstanding bonds with 6.0% coupon rate, 20 years to maturity and $1,000 par value, each. The bonds currently trade at par. The corporate tax rate is 20%. The expansion project will require an immediate investment of $200 million and will generate $35 million pre-tax, starting next year and continue in perpetuity, after that. Should Crypto Inc. accept the project? Show numerically (NPV) why they should or shouldn't accept the project. Crypto Inc. considers a major worldwide expansion project. It currently has 35 million outstanding shares trading at $20 per share. Crypto equity has an estimated beta of 2.0 The risk-free rate is 4%, while the market risk premium is 5%. It also has 300,000 outstanding bonds with 6.0% coupon rate, 20 years to maturity and $1,000 par value, each. The bonds currently trade at par. The corporate tax rate is 20%. The expansion project will require an immediate investment of $200 million and will generate $35 million pre-tax, starting next year and continue in perpetuity, after that. Should Crypto Inc. accept the project? Show numerically (NPV) why they should or shouldn't accept the project.

Answer rating: 100% (QA)

To determine whether Crypto Inc should accept the expansion project we need to calculate the Net Pre... View the full answer