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ct. At the end of the 10 years, the firm expects to sell the superstore for an after-tax value of $4.7 million. a) What is the WACC of the firm? Show your calculations. b) What is the NPV of the superstore project? Show your calculations.

ct. At the end of the 10 years, the firm expects to sell the superstore for an after-tax value of $4.7 million. a) What is the WACC of the firm? Show your calculations. b) What is the NPV of the superstore project? Show your calculations.

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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Bob's is a retail chain of specialty hardware stores. The firm has 18,000 shares of stock outstanding that are currently valued at $82 a share and provide a rate of return of 13.2 percent. The firm also has 600 bonds outstanding that have a face value of $1,000, a market price of $1,012, and a coupon rate of 9%. These bonds mature in 7 years and pay interest semiannually. The tax rate is 35%. The firm is considering expanding by building a new superstore. The superstore will require an initial investment of $9.3 million and is expected to produce cash inflows of $1.17 million annually over its 10-year life. The risks associated with the superstore are comparable to the risks of the firm's current operations. The initial investment will be depreciated on a straight-line basis to a zero book value over the life of the project. At the end of the 10 years, the firm expects to sell the superstore for an after-tax value of $4.7 million.

a) What is the WACC of the firm? Show your calculations.

b) What is the NPV of the superstore project? Show your calculations.

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