Question
You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding 20 million Stock price per share $40.00 Yield to maturity on
You have the following information about Burgundy Basins, a sink manufacturer.
| Equity shares outstanding | 20 million |
| Stock price per share | $40.00 |
| Yield to maturity on debt | 7.5% |
| Book value of interest-bearing debt | $320 million |
| Coupon interest rate on debt | 4.8% |
| Market value of debt | $290 million |
| Book value of equity | $500 million |
| Cost equity of capital | 14% |
| Tax rate | 35% |
Burgundy is contemplating what for the company is an average-risk investment costing $40 million and promising an annual ATCF of $6.4 million in perpetuity.
What is the internal rate of return on the investment? (hint: use the equation for a perpetuity)
What is Burgundys WACC?
If undertaken, would you expect this investment to benefit shareholders? Why and why not?
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Gender And Finance
Authors: Ylva Baeckström
1st Edition
103205557X, 978-1032055572
