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I'm curious about how to figure out the NPV, especially the red part I've underlined. Please explain thoroughly for a thumbs up, thank you! H&A's
I'm curious about how to figure out the NPV, especially the red part I've underlined. Please explain thoroughly for a thumbs up, thank you!
H\&A's New Store Project - NPV Using WACC - H&A s current asset value is V=$100M, financed with D=$60M and E=$40M. - H\&A always maintains its D/V=60%. - Also, rD=5% and rE=14%. The tax rate is =35%. - The project costs $20M and gives an FCF of $6M for 5 years. - H\&A's new store project is an expansion of its main line of business. - H\&A will impose its own financing mix on the new store WACC does not change over time, so the WACC method is easy to use! - H&ASrWACC=.414%+.65%(1.35)=7.55% - NPV=$20M+A(7.55%,5yrs)$6M=$20M+$24.2M=$4.2MStep by Step Solution
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