Luxus Co. has the financial leverage ratio (D/E) as 1.0. The debt is represented by a bank loan of $ 400 million, that is repaid annually with 6 equal payments of $ 89 million. The cost of equity equals to 15%, the tax rate is 20%.
Calculate:
a.Cost of debt (4 points)
b. Weighted average cost of capital (4 points)
c. Is it reasonable to accept the project with initial investment of $900 million and annual net cash flows as follows:
$200 million, $ 1200 million?