A bio-technology company is looking to invest $25 billion in new technology that is expected to produce incremental cash flows of $7 billion, $12 billion, and $15 billion in each of the next three years, respectively. The CFO has asked that you and your team determine whether or not the company should invest in the new technology. In order to finance the project, the company will issue new bonds and new equity. Of the $25 billion in costs, $8 billion will be financed with a new debt issue. In fact, the company is anticipating issuing two different bonds - short-term bonds and long-term bonds. Thirty percent of the $8 billion in debt capital will be raised with the short-term bond issue while the other 70% will be raised with the long-term bond issue. Of the $25 billion in costs, $17 billion will be financed with new equity. Given this information, your objective is to calculate the weighted average cost of capital that then determine whether the future cash flows (in present value terms) are greater than the $25 billion investment. QUESTION: In this problem you will calculate the weighted average cost of capital for the bio-tech firm given the information from problems 17 and 18. Suppose the before-tax cost of debt from problem 17 is 8% while the cost of equity from problem 18 is 20%. Using this information as well as the information about how the bio-tech firm will finance the investment in the new technology, what is the WACC? 0 9.99% O 11.21% 09.08% O 15.29% O 12.18% 16.08% 17.63% O 8.42% O 10.749 O 14.21% A bio-technology company is looking to invest $25 billion in new technology that is expected to produce incremental cash flows of $7 billion, $12 billion, and $15 billion in each of the next three years, respectively. The CFO has asked that you and your team determine whether or not the company should invest in the new technology. In order to finance the project, the company will issue new bonds and new equity. Of the $25 billion in costs, $8 billion will be financed with a new debt issue. In fact, the company is anticipating issuing two different bonds - short-term bonds and long-term bonds. Thirty percent of the $8 billion in debt capital will be raised with the short-term bond issue while the other 70% will be raised with the long-term bond issue. Of the $25 billion in costs, $17 billion will be financed with new equity. Given this information, your objective is to calculate the weighted average cost of capital that then determine whether the future cash flows (in present value terms) are greater than the $25 billion investment. QUESTION: In this problem you will calculate the weighted average cost of capital for the bio-tech firm given the information from problems 17 and 18. Suppose the before-tax cost of debt from problem 17 is 8% while the cost of equity from problem 18 is 20%. Using this information as well as the information about how the bio-tech firm will finance the investment in the new technology, what is the WACC? 0 9.99% O 11.21% 09.08% O 15.29% O 12.18% 16.08% 17.63% O 8.42% O 10.749 O 14.21%
