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In: Finance

You are considering a project that will cost $50,000 to set up, and will pay out...

You are considering a project that will cost $50,000 to set up, and will pay out $18,000 1, 2, 3

and 4 years from today. The unlevered beta for this project is 1.2, the risk free rate is 6.5%, and

the expected return on the S&P 500 is 15%. Corporate taxes are 25%.

a.

What is the unlevered cost of equity for this project?

b. What is the NPV of this project if you finance with all equity?

c.

You are considering borrowing $30,000 to finance this project, with repayment in 4

years. You could normally borrow at 7.5%. The Nebraska state government has offered

to lend you the money at 6%. What is the adjusted present value of this project if you

take the subsidized loan?

Solutions

Expert Solution

jeff jeffy answered 2 hours ago
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