Use the following information about Company XYZ, illustrated in Table 4, to answer the questions below....
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Use the following information about Company XYZ, illustrated in Table 4, to answer the questions below. Table 4 Market Value Balance Sheet ($ Millions) and Cost of Capital Assets: Liabilities: Debt 200 Equity 300 Cash Other Assets 0 500 Year Free Cash Flows Cost of Capital: Debt 6% a) What is the company's unlevered cost of capital? (3 marks) Table 5 0 Equity Tax rate Consider the company has new project to undertake. Assume that this new project is of average risk for the company and that the company wants to hold constant its debt-to-equity ratio. The free cash flows of this project are illustrated in Table 5: ($100) 12% 35% 1 $40 2 $50 $60 b) What is the unlevered value of XYZ's new project? (3 marks) c) Compute XYZ's weighted average cost of capital (WACC) and the NPV for XYZ's new project. (7 marks) d) Calculate the present value of the interest tax shield provided by XYZ's new project. (7 marks) Use the following information about Company XYZ, illustrated in Table 4, to answer the questions below. Table 4 Market Value Balance Sheet ($ Millions) and Cost of Capital Assets: Liabilities: Debt 200 Equity 300 Cash Other Assets 0 500 Year Free Cash Flows Cost of Capital: Debt 6% a) What is the company's unlevered cost of capital? (3 marks) Table 5 0 Equity Tax rate Consider the company has new project to undertake. Assume that this new project is of average risk for the company and that the company wants to hold constant its debt-to-equity ratio. The free cash flows of this project are illustrated in Table 5: ($100) 12% 35% 1 $40 2 $50 $60 b) What is the unlevered value of XYZ's new project? (3 marks) c) Compute XYZ's weighted average cost of capital (WACC) and the NPV for XYZ's new project. (7 marks) d) Calculate the present value of the interest tax shield provided by XYZ's new project. (7 marks)
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Answer rating: 100% (QA)
a The unlevered cost of capital also known as the cost of equity can be calculated using the following formula Unlevered Cost of Capital Cost of Equit... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0133400694
1st canadian edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford, David A. Stangeland, Andras Marosi
Posted Date:
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