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Not sure how to answer this set of questions from a past exam paper
PART B: SHORT PROBLEMS (30 Marks) Problem 1 (12 marks) (a). NIT is going to adjust its current De Equity ratio from 1.5 to 2. Using the information in the table below, calculate the cost of equity of NIT after the capital restructure ID/E-1.5 IT DVE-2 Cost of debt 696 6.596 Cost of equity 1294 30% 30% 7 Tax rate (4 marks) 89 no (26) 1.4 (b) NBT Lad plans to invest in a project with three years' life and will finance the initial investmem using $3m debt plus $2m equity. NBT will repay $1 million debt at the end of each year until it is fully repaid. Other important information is provided in the table below. Calculate the adjusted present value (APV) of the project (8 marks) cost of debt Asset beta (unlevered firm beta) Market risk premium Risk free interest rate Free cash flow (unlevered) 8% 1.2 6% 4% $3m
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