Question
The common stock of Technik Inc. has a beta of 0.8, the Treasury bill rate is 4% and the market risk premium is estimated at
The common stock of Technik Inc. has a beta of 0.8, the Treasury bill rate is 4% and the market risk premium is estimated at 7%. Techniks capital structure is 30% debt paying a 5% interest rate and 70% equity.
1. What is Technik Inc's cost of equity capital (from CAPM) and its WACC? Technik Incs tax rate is 35%.
2. One project in particular Technik Inc. is evaluating has an internal rate of return of 12%. Should it accept the project? Why or why not?
The project will generate a cash flow of $100,000 per year for 7 years.
1. What is the most Technik Inc. would be willing to pay to initiate the project?
The project will generate a cash flow of $100,000 per year for 7 years. What is the most Technik Inc. would be willing to pay to initiate the project?
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