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A firm's after-tax cost of debt is 3%, and its cost of equity is 10%. It is considering a small project, with a similar risk profile to the rest of the firm. The project has up front cost of $7mn in year 0, and results in cash flows to the firm of $7.3mn in year 1 (and no cash flows thereafter). The project's NPV is equal to 0. What is the firm's debt-to-equity ratio?

A firm's after-tax cost of debt is 3%, and its cost of equity is 10%. It is considering a small project, with a similar risk profile to the rest of the firm. The project has up front cost of $7mn in year 0, and results in cash flows to the firm of $7.3mn in year 1 (and no cash flows thereafter). The project's NPV is equal to 0. What is the firm's debt-to-equity ratio?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A firm's after-tax cost of debt is 3%, and its cost of equity is 10%. It is considering a small project, with a similar risk profile to the rest of the firm. The project has up front cost of $7mn in year 0, and results in cash flows to the firm of $7.3mn in year 1 (and no cash flows thereafter). The project's NPV is equal to 0. What is the firm's debt-to-equity ratio?
Transcribed Image Text:A firm's after-tax cost of debt is 3%, and its cost of equity is 10%. It is considering a small project, with a similar risk profile to the rest of the firm. The project has up front cost of $7mn in year 0, and results in cash flows to the firm of $7.3mn in year 1 (and no cash flows thereafter). The project's NPV is equal to 0. What is the firm's debt-to-equity ratio?
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