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LMN Enterprises is considering a 2M investment in additional PPE. Potential investment: 30% equity/ 70% debt Cost of equity is 4.75% and cost of debt
LMN Enterprises is considering a 2M investment in additional PPE. Potential investment: 30% equity/ 70% debt Cost of equity is 4.75% and cost of debt is 6.25%. *Assume no residual value Initial Investment Cashflow: $2,000,000.00 Cashflow Year 1: $225,000.00 Cashflow Year 2: $225,000.00 Cashflow Year 3: $225,000.00 Cashflow Year 4: $250,000.00 Cashflow Year 5: $250,000.00 Cashflow Year 6: $250,000.00 Cashflow Year 7: $250,000.00 Cashflow Year 8: $350,000.00 Cashflow Year 9: $350,000.00 Cashflow Year 10: $350,000.00 Internal Rate of Return (IRR): Should the company invest? Explain why or why not. What if the company changes its capital structure for this investment to 70% equity and only 30% debt? Recalculate NPV and IRR. Shold the company invest? Explain why or why not
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