Question
2A. The asset beta for food trucks is 0.7. XYZ Food Service has a debt-to-equity ratio of 0.7. The riskless rate is 2.9%, the expected
2A. The asset beta for food trucks is 0.7. XYZ Food Service has a debt-to-equity ratio of 0.7. The riskless rate is 2.9%, the expected return on the S&P 500 is 12.1%, and the tax rate is 23.9%. XYZ can borrow at 6.8%. What is the NPV of XYZ purchasing a taco truck if it has an initial cost of $213,149 and produces EBIT of $38,157 per year for the next 15 years, using the WACC method? Please give your answer to the nearest dollar.
2B. Would owning equity in the taco truck project described above be more or less risky than owning an S&P500 index fund? Why?
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