Question
Gordons Gin has equity with a book value of $30 million and a market value of $60 million. It has debt with a market value
Gordons Gin has equity with a book value of $30 million and a market value of $60 million. It has debt with a market value of $10 million. T bills yield 4% per year. The market risk premium is estimated to be 9%. The beta of Gordons Gin is 1.5. Assume no taxes. Assume that the companys debt is risk-free. a) What is the firms debt-equity ratio? b) Whats the firms weighted average cost of capital? c) What would be the NPV of a project that costs $1m upfront, produces a CF of $200,000 at the end of year one, $300,000 at the end of year two, and an annual cash flow of $100,000 from the end of year 3 forever?
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