Based on market values, Gubler's Gym has an equity multiplier of 1.63 times. Shareholders require a return of 11.59 percent on the company's stock and a pretax return of 5.01 percent on the company's debt. The company is evaluating a new project that has the same risk as the company itself. The project will generate annual aftertax cash flows of $311,000 per year for 8 years. The tax rate is 21 percent. What is the most the company would be willing to spend today on the project? 10:41 pm
Based on market values, Gubler's Gym has an equity multiplier of 1.63 times. Shareholders require a return of 11.59 percent on the company's stock and a pretax return of 5.01 percent on the company's debt. The company is evaluating a new project that has the same risk as the company itself. The project will generate annual aftertax cash flows of $311,000 per year for 8 years. The tax rate is 21 percent. What is the most the company would be willing to spend today on the project? 10:41 pm
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
Problem 1PS
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Transcribed Image Text:Based on market values, Gubler's Gym has an equity
multiplier of 1.63 times. Shareholders require a return
of 11.59 percent on the company's stock and a pretax
return of 5.01 percent on the company's debt. The
company is evaluating a new project that has the
same risk as the company itself. The project will
generate annual aftertax cash flows of $311,000 per
year for 8 years. The tax rate is 21 percent. What
is the most the company would be willing to spend
today on the project?
10:41 pm
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