1. ABC co has a target debt over equity D/E = 50% (D = net debt and E = market cap) for which its cost of debt is 6%. ABCs equity beta is 2 and it has a 30% corporate tax rate. The riskfree rate is 2% and the market risk premium is 6%. ABC is considering the acquisition of plant and equipment to expand production. The project would cost $300m and give a $5m free cash flow next 5 years which would then grow at a rate of 2% annually in perpetuity .ABCwould finance the acquisition by issuing new equity.

1. Estimate WACC, and calculate the NPV of the investment