National Electric Company (NEC) is considering a $45.09 million project in its power systems division....
90.2K
Verified Solution
Link Copied!
Question
Finance
National Electric Company (NEC) is considering a $45.09 million project in its power systems division. Tom Edison, the companys chief financial officer, has evaluated the project and determined that the projects unlevered cash flows will be $3.19 million per year in perpetuity. Mr. Edison has devised two possibilities for raising the initial investment: Issuing 10-year bonds or issuing common stock. The companys pretax cost of debt is 7.8 percent, and its cost of equity is 11.7 percent. The companys target debt-to-value ratio is 80 percent. The project has the same risk as the companys existing businesses, and it will support the same amount of debt. The tax rate is 35 percent.
Calculate the weighted average cost of capital. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Weighted average cost of capital
%
Calculate the net present value of the project. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Net present value
$
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
