Question
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%
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