Waterslides Adventure needs $40M of capital raised to invest in a project that is expected to have free cash flow in the coming year of $8M and this free cash flow is expected to grow at a rate of 3% per year thereafter. Waterslides Adventure has an equity cost of capital of 13%, a debt cost of capital of 7% and it pays a 35% corporate tax rate. The firm plans to maintain a 0.5 D/E and the only market imperfections are taxes and financial distress costs. 

What is the amount of new equity that needs to be raised to start this project? Use the WACC method to calculate this value. 

Answer rating: 100% (QA)

The first step is to calculate the weighted average cost of capital WACC WACC EV Re DV Rd 1 Tc where ... View the full answer