rs an expansion project. It currently has 100 million outstanding shares trading at $20 per share. Equity has an estimated beta of 1.6. The risk-free rate is 4%, while the market risk premium is 5%. It also has 2,000,000 outstanding bonds with $1,000 par. The bonds are zero-coupon bond with ten years to maturity and are priced at 45.6386% of par (for yield, assume annual compounding). The corporate tax rate is 30%. The project will require an
rs an expansion project. It currently has 100 million outstanding shares trading at $20 per share. Equity has an estimated beta of 1.6. The risk-free rate is 4%, while the market risk premium is 5%. It also has 2,000,000 outstanding bonds with $1,000 par. The bonds are zero-coupon bond with ten years to maturity and are priced at 45.6386% of par (for yield, assume annual compounding). The corporate tax rate is 30%. The project will require an
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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Coffee Planet Inc considers an expansion project. It currently has 100 million outstanding shares trading at $20 per share. Equity has an estimated beta of 1.6. The risk-free rate is 4%, while the market risk premium is 5%. It also has 2,000,000 outstanding bonds with $1,000 par. The bonds are zero-coupon bond with ten years to maturity and are priced at 45.6386% of par (for yield, assume annual compounding). The corporate tax rate is 30%. The project will require an investment if $100 million and will
produce a net after tax cash flow of $17 million per year for 10 years. Should Coffee planet accept the project?
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