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Parker Corporation is considering a project that costs $9,000,000 and will increase the after-tax cash flows by $2,000,000 per year for five years. The company
Parker Corporation is considering a project that costs $9,000,000 and will increase the after-tax cash flows by $2,000,000 per year for five years. The company has total assets of $80,000,000 and total debt of $20,000,000. The borrowing rate is 10 percent, the corporate tax rate is 21%, the risk-free rate is 2%, the beta of the stock is 1.5, and the return on the market is 9 percent. 5. The percent of debt in the capital structure is ________ 6. The cost of equity is __________ 7. The weighted average cost of capital is __________ 8. The NPV of the project is _________ 9. Should Parker undertake the project? Explain.
Parker Corporation is considering a project that costs $9,000,000 and will increase the after-tax cash flows by $2,000,000 per year for five years. The company has total assets of $80,000,000 and total debt of $20,000,000. The borrowing rate is 10 percent, the corporate tax rate is 21%, the risk-free rate is 2%, the beta of the stock is 1.5, and the return on the market is 9 percent.
5. The percent of debt in the capital structure is ________
6. The cost of equity is __________
7. The weighted average cost of capital is __________
8. The NPV of the project is _________
9. Should Parker undertake the project? Explain.
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