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Company is looking for a capacity expansion funded by 70% Equity and 30% Debt. Beta of Company is 1.29 and Cost of Debt is 8%.
Company is looking for a capacity expansion funded by 70% Equity and 30% Debt. Beta of Company is 1.29 and Cost of Debt is 8%. Initial Cash outflows towards expansion is -50,000 Cr. Cash inflows at the end of year 1 is 5000 Cr thereafter the company receives 5000 Cr every year for 15 years. Should they accept the project? Note down your major observations about the project and its NPV. Assume tax rate to be 25%, Risk Free Rate to be 7%, and Equity Risk Premium to be 7.5%.
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