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Assume all the numbers are in cash flows (i.e., no adjustments are required). A company has 100 million dollars of equity (S) and 50 million
Assume all the numbers are in cash flows (i.e., no adjustments are required). A company has 100 million dollars of equity (S) and 50 million of debt (B). The cost of equity (RS) is 15%, and the cost of debt (RB) is 5%. The company is considering a project that requires 10 million dollars of investment at time 0, which will produce EBIT of 3, 6, and 10 million dollars in years 1-3, respectively. The tax rate is 25%. What is the projects NPV? (a) 1.11 (b) 4.81 (c) 0.51 (d) 6.71
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