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The Alto Horns Corp. is planning on introducing a new line of saxophones. They expect sales to be $400,000 with total fixed and variable costs representing 70% of sales. The discounted rate of the unlevered equity is 17%, but the firm plans to raise $144, 385 of the initial $450,000 investment as 9% perpetual debt. The corporate tax rate is 40% and the target debt to asset (or value) ratio is 0.3. For the next question suppose the WACC approach is used to evaluate the project. What is the RWACC of the project? a) 12.48% b) 13.33% c) 14.96% d) 15.23% e) 18.34%

The Alto Horns Corp. is planning on introducing a new line of saxophones. They expect sales to be $400,000 with total fixed and variable costs representing 70% of sales. The discounted rate of the unlevered equity is 17%, but the firm plans to raise $144, 385 of the initial $450,000 investment as 9% perpetual debt. The corporate tax rate is 40% and the target debt to asset (or value) ratio is 0.3. For the next question suppose the WACC approach is used to evaluate the project. What is the RWACC of the project? a) 12.48% b) 13.33% c) 14.96% d) 15.23% e) 18.34%

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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The Alto Horns Corp. is planning on introducing a new line of saxophones. They expect sales to be $400,000 with total fixed and variable costs representing 70% of sales. The discounted rate of the unlevered equity is 17%, but the firm plans to raise $144, 385 of the initial $450,000 investment as 9% perpetual debt. The corporate tax rate is 40% and the target debt to asset (or value) ratio is 0.3. For the next question suppose the WACC approach is used to evaluate the project. What is the RWACC of the project? a) 12.48% b) 13.33% c) 14.96% d) 15.23% e) 18.34%
Transcribed Image Text:The Alto Horns Corp. is planning on introducing a new line of saxophones. They expect sales to be $400,000 with total fixed and variable costs representing 70% of sales. The discounted rate of the unlevered equity is 17%, but the firm plans to raise $144, 385 of the initial $450,000 investment as 9% perpetual debt. The corporate tax rate is 40% and the target debt to asset (or value) ratio is 0.3. For the next question suppose the WACC approach is used to evaluate the project. What is the RWACC of the project? a) 12.48% b) 13.33% c) 14.96% d) 15.23% e) 18.34%
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