You are the CFO of Boogle and are pitching to your Board a new investment. The project requires a total CapEx outlay of $200 million today (date 0). The target debt- to-assets ratio for the firm and for this project is 0.25 (25%). The project will generate total free cash flow of $50.4 million for each of the next four years (dates 1, 2, 3, 4). The firm faces a corporate tax rate of 30%. Its debt beta is 0.2 and its equity beta is 1.8. The risk free rate is 3% and the market risk premium is 5%.

MSIN0149 2021/22

6

MSIN0149: Corporate Finance

1. What is Boogles weighted-average cost of capital?

2. What is the projects value according to the WACC method?

3. Compute the free cash flow to equity for the project at each date.

4. What is the projects value according to the FTE method? Show your calculations.