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Suppose XYZ company has a 12% cost of equity and pays 3% interest rate on its debt. The firm's debt-to-equity is 1/2. XYZ is interested
Suppose XYZ company has a 12% cost of equity and pays 3% interest rate on its debt. The firm's debt-to-equity is 1/2.
XYZ is interested in investing in an IT project that will cost $4,000,000 and will provide $500,000 EBIT {earning before interest and tax) forever.
Given the project is an extension of its core business. the project risk is similar to the overall risk of the firm. The firm's capital structure will not be affected by the new project.
What is the net present value of this project H XYZ's tax rate is 30%?
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