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Instead of using only debt, you decide to use a combination of debt and equity. You issue a 5-year zero coupon bond for $700. The
Instead of using only debt, you decide to use a combination of debt and equity. You issue a 5-year zero coupon bond for $700. The principal is $1,200. The remaining is financed using equity. The is 1.2, the market portfolio return is 20%, and the risk-free rate is 2%. Taxes are 30%. What is the new WACC and new NPV for the project? Do you accept or reject?
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