Question 3

You are a financial manager at Cisco and are trying to assess the following project. The project will require a $70 million initial investment and will generate free cash flows in years 1-5 as shown in the table below. Cisco maintains a constant debt-to-enterprise value ratio of 45% and its current WACC is 10.3%. Assuming that Cisco takes the project, how much additional debt must Cisco Issue in order to maintain a constant debt-to-enterprise value ratio of 45%? (Select one)

		$46.63 million
		$31.5 million
		$15.13 million
		$70 million

Free Cash Flows for New Project (in $ million) Year 0 1 2 3 4 5 FCF (in $ millions) (70.00) 5.00 20.00 50.00 40.00 30.00