Question
At the moment Lauren Co. keeps a constant debt-to-equity ratio equal to 1, its wacc is 13% and its cost of debt is 2.50%. Moreover
At the moment Lauren Co. keeps a constant debt-to-equity ratio equal to 1, its wacc is 13% and its cost of debt is 2.50%. Moreover the company's debt bears no systematic risk. Lauren is thinking to raise $20,000,000 to acquire the assets for a new, 7 year-long, project. The assets of this new project are as risky as the other assets of the rm. This new venture will be separated from the rest of the company's operations. As the new project is short-lived, Lauren's management think to keep a constant amount of debt equal to 30% of the initial asset value. The cost of debt for the new project is the same as the cost of the other debt issued by the company. The assets of the project will be depreciated straight line through the life of the project, and the present value of depreciation tax benets for the rst year is 709,171.50. The corporate tax rate is 26%. Assuming that the annual expected net income from the project is $14,534,000, what is the NPV of the project?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started