Question
Triasonic Corporation has a capital structure consisting of 40% debt and 60% equity. Risk-free rate is 12 percent and market risk premium is 8 percent.
Triasonic Corporation has a capital structure consisting of 40% debt and 60% equity. Risk-free rate is 12 percent and market risk premium is 8 percent. Current yield to maturity for the bonds of this company is 14%. The corporation is evaluating a start-up project that has an initial investment of Taka 24,000. The project is expected to generate cash flows of Taka 2,000 in the first year, Taka 5,000 in the second year and Taka 8,000 in the third year. The cash flows are expected to increase at 10 percent per year from that point on. The project has a beta of 1.2. Tax rate is 35%.
(a) What is the terminal value of the project at the end of the 3rd year?
(b) Determine the IRR and NPV of the project
(c) Should Triasonic select the project? Why?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started