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Adelphia is considering an expansion project. The project will generate an expected free cash flow of $20M per year in perpetuity, and requires an initial
Adelphia is considering an expansion project. The project will generate an expected free cash flow of $20M per year in perpetuity, and requires an initial investment of $150M. Adelphia has a target Debt/Equity ratio of 1, and faces a tax rate of 30%. At this target debt ratio, the weighted average cost of capital is rwACC = 10%. The firm's cost of debt is 6%. The value of the interest tax shield (PV(ITS)) is closest to: O A) $ 22.5M OB) $ 16.5M O C) $ 18.0M OD) $ 12.5M
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