The project only lasts five years. You must finance the project by an equal split between debt and e

The project only lasts five years.


You must finance the project by an equal split between debt and equity funding. 

The project will require $35,000 worth of stock and $35,000 worth of debt. 

The tax rate is 35%. 

Beta = 1.25 

The risk free rate (r ) is 5%. 

You have two investment opportunities: 

A slowly growing project. 

A slowly declining project. 

 

Invest 1           Invest 2

-25,000-30,000

$100,000.00$115,000.00

$105,000.00$109,523.81

$110,250.00$104,308.39

$115,762.50$99,341.32

$121,550.63$94,610.78

 

           Invest 1 INvest 2

Equaity   7%  12%

Debt       12%  7%

 

Note: The table lists the market premium (rm− rf) for the equity rates.


Calculate the WACC for both investment. Calculate the NPV for investments discounted at their respective WACCs. 

You may want to use Excel’s NPV() function to figure NPV. 

 

    • Posted: 4 years ago
    • Due: 17/11/2015
    • Budget: $20