Question
In: Finance
You are an analyst at a bank that has been asked to look into a project...
You are an analyst at a bank that has been asked to look into a project that is being undertaken by ABC Corp with a life of 10 years. The project will return cash flows of $2 million every year for 5 years and 4 million for the remaining 5 years after an initial investment of $10 million. The firm has a beta of 0.5 and the expected return of the market is 11%. There are currently 20000 shares outstanding with a current price of $15 per share. The risk-free rate is 3%. In terms of debt, the company has two outstanding bonds. Bond A is a 5% annual coupon bond with a yield of 3% and a face value of $1000 which has 10 years to maturity. Bond B is a 6% semi-annual coupon bond with an annual yield of 4%, a face value of $1000 and 5 years to maturity. The company has issued 85 of each. That corporate tax rate is 30%.
A. What is the firm’s cost of equity?
B. What is the firm’s cost of debt?
C. What is the firm’s weight average cost of capital?
D. What is the NPV of this project?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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IT Software Project As a senior analyst for the company, you have been asked to evaluate...
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As a senior analyst for the company, you have been asked to
evaluate a new IT software project. The company has just paid a
consulting firm $100,000 for a test marketing analysis. After
looking at the project plan, you anticipate that the project will
need to acquire computer hardware for a cost of $450,000. The
Australian Taxation Office rules allow an effective life for the
computer hardware of five years. The equipment can be depreciated
on a...
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consulting firm $100,000 for a test marketing analysis. After
looking at the project plan, you anticipate that the project will
need to acquire computer hardware for a cost of $450,000. The
Australian Taxation Office rules allow an effective life for the
computer hardware of five years. The equipment can be depreciated
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As a senior analyst for the company you have been asked to evaluate a new IT software project.
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As a senior analyst for the company you have been asked to evaluate a new IT software project. The company has just paid a consulting firm $100,000 for a test marketing analysis. After looking at the project plan, you anticipate that the project will need to acquire computer hardware for a cost of $450,000. The Australian Taxation Office rules allow an effective life for the computer hardware of five years. The equipment can be depreciated on...
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evaluate a new IT software project. The company has just paid a
consulting firm $100,000 for a test marketing analysis. After
looking at the project plan, you anticipate that the project will
need to acquire computer hardware for a cost of $450,000. The
Australian Taxation Office rules allow an effective life for the
computer hardware of five years. The equipment can be depreciated
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As a senior analyst for the company you have been asked to evaluate a new IT...
As a senior analyst for the company you have been asked to
evaluate a new IT software project. The company has just paid a
consulting firm $100,000 for a test marketing analysis. After
looking at the project plan, you anticipate that the project will
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Australian Taxation Office rules allow an effective life for the
computer hardware of five years. The equipment can be depreciated
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