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ABC Corporation has an asset beta of 1.65, a tax rate of 40%, and can typically borrow at 6%. The riskless rate is 1.5% and
ABC Corporation has an asset beta of 1.65, a tax rate of 40%, and can typically borrow at 6%. The riskless rate is 1.5% and the expected return on the S&P 500 is 12.9%. ABC is considering investing in a project with an initial cost of $400,000 and a yearly EBIT of $120,000 for the next 8 years. ABC will borrow $350,000 for 8 years to finance the project, at a subsidized interest rate of 5%.
- What is ABC unlevered cost of equity?
- What is the NPV of this project if ABC pays cash?
- What is the NPV of the loan to ABC?
- What is the overall NPV of this project?
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