Consider a company whose capital structure has 50 crore equity and 50 crore debt in year 1. The company earned a profit of 30 crore at the end of year 1 and decided to repay its debt. The company's capital structure in year 2 became *80 crore equity and 20 crore debt. The cash flow from the project in which this money was invested for the two years are as follows: Cash flow for year 1: 30 crore Cash flow for year 2: 25 crore What will be the discount rates/required rate of return for calculating the present value of the cash flow of year 1 and year 2 if the after-tax cost of debt is 7.5% and the cost of equity is 14% ?
Consider a company whose capital structure has 50 crore equity and 50 crore debt in year 1. The company earned a profit of 30 crore at the end of year 1 and decided to repay its debt. The company's capital structure in year 2 became *80 crore equity and 20 crore debt. The cash flow from the project in which this money was invested for the two years are as follows: Cash flow for year 1: 30 crore Cash flow for year 2: 25 crore What will be the discount rates/required rate of return for calculating the present value of the cash flow of year 1 and year 2 if the after-tax cost of debt is 7.5% and the cost of equity is 14% ?
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
Related questions
Question
Transcribed Image Text:Consider a company whose capital structure has 50
crore equity and 50 crore debt in year 1. The
company earned a profit of 30 crore at the end of year
1 and decided to repay its debt. The company's capital
structure in year 2 became *80 crore equity and 20
crore debt. The cash flow from the project in which this
money was invested for the two years are as follows:
Cash flow for year 1: 30 crore
Cash flow for year 2: 25 crore
What will be the discount rates/required rate of return
for calculating the present value of the cash flow of year
1 and year 2 if the after-tax cost of debt is 7.5% and the
cost of equity is 14% ?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education