Question
Borax Inc. is planning to invest US$30 million (capex) in a project that will generate free cash flows (FCF) of $18.93 million for four years.
Borax Inc. is planning to invest US$30 million (capex) in a project that will generate free cash flows (FCF) of $18.93 million for four years. Borax has 2 million shares outstanding trading at $100 per share; and its equity cost of capital amounts to 16%. Borax has $200 million in debt at an average cost of debt of 8%. Borax corporate tax rate is 50%. Calculate Boraxs rwacc and the levered value of the investment (V0) net of costs (or V0 capex), rounding to first decimal:
| a. | 12.0% and $45.3 million | |
| b. | 10.0% and $30.0 million | |
| c. | 9.0% ad $54.4 million | |
| d. | 8.0% and $60.0 million |
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