Question
Burger World Inc considers an expansion project. It currently has 10 million outstanding shares trading at $30 per share. Equity has an estimated beta of
Burger World Inc considers an expansion project. It currently has 10 million outstanding shares trading at $30 per share. Equity has an estimated beta of 1.5. The risk-free rate is 2.5%, while the market risk premium is 5%. It also has 200,000 outstanding bonds with 20 years to maturity, 8% coupon rate, $1,000 par, currently trading at par. The corporate tax rate is 25%. The project will require an investment if $100 million and will produce a net after tax cash flow of $15 million per year for 20 years. Calculate the WACC (Weighted Average Cost of Capital), the project NPV and determine whether Burger World should accept the project?
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Principles of Corporate Finance
Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen
10th Edition
9780073530734, 77404890, 73530735, 978-0077404895
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