Question
a) K&M Co. is considering an investment. The project is expected to be financed by $2,000,000 of bank loans and $3,000,000 of common equity. It
a) K&M Co. is considering an investment. The project is expected to be financed by $2,000,000 of bank loans and $3,000,000 of common equity. It is known that the firms weighted average cost of capital (WACC) is 9.8% and the investment is expected to generate a net operating profit after tax (NOPAT) of $480,000. The companys tax rate is 30%.
(i) What is the projects Economic Value Added (EVA)?
(ii) Should the firm accept or reject the investment? Explain your reason(s).
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American Public School Finance
Authors: William A. Owings, Leslie S. Kaplan
3rd Edition
113849996X, 978-1138499966
