Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The asset beta for food trucks is 0.8. XYZ Food Service has a debt to equity ratio of 0.2. The riskless rate is 3.4%, the

The asset beta for food trucks is 0.8. XYZ Food Service has a debt to equity ratio of 0.2. The riskless rate is 3.4%, the expected return on the S&P 500 is 16.2%, and the tax rate is 34.7%. XYZ can borrow at 6.7%. What is the NPV of XYZ purchasing a taco truck if it has an initial cost of $350,127 and produces EBIT of $27,407 per year for the next 19 years, using the WACC method? Please give your answer to the nearest dollar.

Would owning equity in the taco truck project described above be more or less risky than owning an S&P500 index fund? Why?

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_2

Step: 3

blur-text-image_3

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

Fundamentals of Investing

Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk

12th edition

978-0133075403, 133075354, 9780133423938, 133075400, 013342393X, 978-0133075359

More Books

Students also viewed these Finance questions

Question

=+ b. What is the per-worker production function, y = f(k)?

Answered: 1 week ago