Estefan Industries has a new project available that requires an initial investment of $4.7 million. The project will provide unlevered cash flows of $845,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of .3. The company's bonds have a YTM of 6.6 percent. The companies with operations comparable to this project have unlevered betas of 1.14, 1.07, 1.29, and 1.24. The risk-free rate is 4 percent and the market risk premium is 6.8 percent. The tax rate is 25 percent. What is the NPV of this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)
Estefan Industries has a new project available that requires an initial investment of $4.7 million. The project will provide unlevered cash flows of $845,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of .3. The company's bonds have a YTM of 6.6 percent. The companies with operations comparable to this project have unlevered betas of 1.14, 1.07, 1.29, and 1.24. The risk-free rate is 4 percent and the market risk premium is 6.8 percent. The tax rate is 25 percent. What is the NPV of this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 16PROB
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![Problem 18-14 Beta and Leverage
Estefan Industries has a new project available that requires an initial investment of $4.7
million. The project will provide unlevered cash flows of $845,000 per year for the next
20 years. The company will finance the project with a debt-value ratio of .3. The
company's bonds have a YTM of 6.6 percent. The companies with operations
comparable to this project have unlevered betas of 1.14, 1.07, 1.29, and 1.24. The risk-free
rate is 4 percent and the market risk premium is 6.8 percent. The tax rate is 25
percent. What is the NPV of this project? (Do not round intermediate calculations and
enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,
1,234,567.89)
NPV](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc8514667-bf86-4079-a5fb-967fac7b38d7%2F39144f66-0401-4061-81be-9086dfad813f%2Fr1vwpoj_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 18-14 Beta and Leverage
Estefan Industries has a new project available that requires an initial investment of $4.7
million. The project will provide unlevered cash flows of $845,000 per year for the next
20 years. The company will finance the project with a debt-value ratio of .3. The
company's bonds have a YTM of 6.6 percent. The companies with operations
comparable to this project have unlevered betas of 1.14, 1.07, 1.29, and 1.24. The risk-free
rate is 4 percent and the market risk premium is 6.8 percent. The tax rate is 25
percent. What is the NPV of this project? (Do not round intermediate calculations and
enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,
1,234,567.89)
NPV
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