ct costs $298 at t = 0 and generates unlevered after-tax cash flows of $53 per year forever. The project's unlevered cost of capital is 11.9%. The initial cost of the project is paid for with a ation of debt and equity. Debt contributes $87 and will earn interest at 4.8% forever. (The debt is perpetual, it never matures. Assume the debt tax shield cash flows have the same risk profile ebt cash flows. The debt is fairly priced. All of the project NPV accrues to the equity holders.) The tax rate is 15%. What is the WACC of the levered project? Give your answer in percentage onquer 116

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
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*A project costs $298 at t = 0 and generates unlevered after-tax cash flows of $53 per year forever. The project's unlevered cost of capital is 11.9%. The initial cost of the project is paid for with a
combination of debt and equity. Debt contributes $87 and will earn interest at 4.8% forever. (The debt is perpetual, it never matures. Assume the debt tax shield cash flows have the same risk profile
as the debt cash flows. The debt is fairly priced. All of the project NPV accrues to the equity holders.) The tax rate is 15% . What is the WACC of the levered project? Give your answer in percentage
to the nearest 0.1 % . correct answer: 11.6
Transcribed Image Text:*A project costs $298 at t = 0 and generates unlevered after-tax cash flows of $53 per year forever. The project's unlevered cost of capital is 11.9%. The initial cost of the project is paid for with a combination of debt and equity. Debt contributes $87 and will earn interest at 4.8% forever. (The debt is perpetual, it never matures. Assume the debt tax shield cash flows have the same risk profile as the debt cash flows. The debt is fairly priced. All of the project NPV accrues to the equity holders.) The tax rate is 15% . What is the WACC of the levered project? Give your answer in percentage to the nearest 0.1 % . correct answer: 11.6
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