Question
In: Finance
Empress Inc. has issued a bond with a face value of $1,000 and an interest rate...
Empress Inc. has issued a bond with a face value of $1,000 and an interest rate of 9% to fund a new project. The bond is secured by the cash flows from the project, which will be $950 with a probability of 50% and $1,200 otherwise. Assume risk neutrality.
What is the appropriate cost of capital for the project?
Solutions
Expert Solution
| Calculation of CF from the project | ||||
| 1075 | -----> | 50%*950 + 50%*1200 | ||
| Cost of capital = | ||||
| Return on CF / Investment | ||||
| (1075-1000)/1000 | ||||
| 7.50% |
jeff jeffy answered 2 years agoRelated Solutions
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