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5 pts Question 22 Your firm plans on taking on a new project. The project will require an initial investment of $20,000 (at Time 0)
5 pts Question 22 Your firm plans on taking on a new project. The project will require an initial investment of $20,000 (at Time 0) for a new asset. The asset will last forever, carried on the firm's balance sheet at $20,000 always. The project will not require any working capital. The project will have an infinite life and produce EBIT of $5,500 a year, forever (first EBIT earned at Time 1). All earnings will be paid out as a dividend each year. The $20,000 invested at Time O will be supplied by investors as $8,000 of debt, at a before-tax cost of debt of 8 percent, and $12,000 of equity, at a cost of equity of 16 percent. The firm's tax rate is 40 percent. Based on this, you can calculate the market value of the firm's equity (eg, using an EVA/MVA approach). What is the market-to-book ratio for the firm's equity? Enter your answer in decimal format, truncated to 2 decimal places. For example, if your answer is 4.556, enter 4.55
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