Eyesore Electric Scooters is opening a new branch in Lincoln today. Their unlevered cost of equity is 14%, and their cost of debt is 5%. Their debt to equity ratio is 1.1, and their tax rate is 26%. Initial costs are $1.5M. The firm expects EBIT of $1M one year from today, $500,000 two years from today, and $200,000 three years from today, after which they expect to shut down. They will finance some of their startup costs by borrowing $400,000 at their cost of debt, to be repaid three years from today.

Part A. What is Eyesore’s levered cost of equity?

Part B. What is the NPV of this project using the FTE method?

Answer rating: 100% (QA)

Part A Levered Cost of equity Levered equity Unlevered cost of equity 1 Tax ra... View the full answer