Question
A firm is considering a project that will generate perpetual cash flows of $15,000 per year beginning next year. The project has the same risk
A firm is considering a project that will generate perpetual cash flows of $15,000 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity costs 14% and debt costs 4% on an aftertax basis. The firm's D/E ratio is 0.8. What is the most the firm can pay for the project and still earn its required return? I know the answer and equation to find this would be CF/WACC but I don't know how to find WACC. Again, I know the equation but I am unsure how to find the D, V, and E in this equation. Please show how you got those numbers in the equations to get B as the answer.
A) $138,000 B) $157,000 C) $164,000 D) $182,000 E) $199,000
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