Question 5 ABC Co has a target debt ratio of 40% and it keeps this...
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Question 5 ABC Co has a target debt ratio of 40% and it keeps this target. The cost of equity is 10% and the cost of debt is 4%. It is considering expanding its business and requires $1 million investment. After expansion, ABC expects additional free cash flows of $0.2 million per year in perpetuity. ABC decides to issue equity to finance this expansion. The equity issuance cost is 5%. The corporate tax rate is 30%. Assume that ABC will maintain the target debt ratio. What's the NPV of the expansion project
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