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National Electric Company (NEC) is considering a $22 million expansion project. The projects expected after-tax cash flows will be $4 million, in perpetuity. The company
- National Electric Company (NEC) is considering a $22 million expansion project. The projects expected after-tax cash flows will be $4 million, in perpetuity. The company can issue either equity or debt to raise the necessary $22 million. Its cost of equity is 20%. The expansion project has the same risk as the existing business and NEC is in the 34% tax bracket.
- If the project is financed at 100% with equity, will you invest in this project?
- Suppose now that the NECs target debt-equity ratio is 1 and its cost of debt is 10%. Using the APV approach, will you invest in this project?
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Personal Finance
Authors: E. Thomas Garman, Raymond E. Forgue, Jonathan Fox
14th Edition
