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DON'T COPY FROM OTHER 6.RST Company has 8.5 million shares of common stock outstanding and 200,000 7.5% semiannual bonds outstanding, and the par value is

DON'T COPY FROM OTHER

6.RST Company has 8.5 million shares of common stock outstanding and 200,000 7.5% semiannual bonds outstanding, and the par value is $1,000 each. The common stock currently sells for $34 per share and has a beta of 0.9. The bonds have 15 years to maturity and currently sell for 93% of par. The market risk premium is 7%, T-bills are yielding 5%, and RST Company's tax rate is 35%. RST Company consider taking up an investment project. They need to invest 30 million for the project.Total expenses are 70% of revenue with no depreciation expense. a) What is the NPV break-even sales revenue? b) Calculate the rate of return of debtors and investors at the NPV break-even sales. c) Are debtors and investors getting back the rate of return they expected? WACC=8.98%

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