Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Sisters Ltd is planning to invest in a capital project, which will generate cash inflows of $15,000 in the 1st year, $22,000 in the 2nd

Sisters Ltd is planning to invest in a capital project, which will generate cash inflows of $15,000 in the 1st year, $22,000 in the 2nd year, and $25,000 in the 3rd year. The project ends after year 3. The company's current debt to equity ratio is 0.8 with the cost of debt of 8% p.a. compounded annually. Sisters Ltd stock has a beta of 1.2. The risk-free rate is 3% p.a. compounded annually and the expected market return is 10.5% p.a. compounded annually. The new debt to equity ratio as a result of financing the project is 1. What is the total present value of the project's cash inflows? Show your working.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Foundations of Finance The Logic and Practice of Financial Management

Authors: Arthur J. Keown, John D. Martin, J. William Petty

8th edition

132994879, 978-0132994873

More Books

Students also viewed these Finance questions

Question

have a question on part B question 1 & 2...

Answered: 1 week ago

Question

How are most students funded?

Answered: 1 week ago