What is your best estimate of the weighted average cost of capital with an $100 million in borrowing ? ould invest those $100 million in a new project with a business risk (ie, asset r e current business risk of the company. This project has an expected before-ta nillion, and costs of $30 million a year in perpetuity. Assume that the annual n nditures are offset by the depreciation (5 million) and that annual NWC investi
What is your best estimate of the weighted average cost of capital with an $100 million in borrowing ? ould invest those $100 million in a new project with a business risk (ie, asset r e current business risk of the company. This project has an expected before-ta nillion, and costs of $30 million a year in perpetuity. Assume that the annual n nditures are offset by the depreciation (5 million) and that annual NWC investi
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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![2. What is your best estimate of the weighted average cost of capital with and without the
$100 million in borrowing ?
You could invest those $100 million in a new project with a business risk (ie, asset risk) very similar
to the current business risk of the company. This project has an expected before-tax revenues of
$50 million, and costs of $30 million a year in perpetuity. Assume that the annual new capital
expenditures are offset by the depreciation (5 million) and that annual NWC investment is
negligible.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fab4ef834-bbcc-4669-a4c3-4f579799562b%2F3c2f1c33-f98d-4d9c-b16c-ac1a88172701%2F5sefuno_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. What is your best estimate of the weighted average cost of capital with and without the
$100 million in borrowing ?
You could invest those $100 million in a new project with a business risk (ie, asset risk) very similar
to the current business risk of the company. This project has an expected before-tax revenues of
$50 million, and costs of $30 million a year in perpetuity. Assume that the annual new capital
expenditures are offset by the depreciation (5 million) and that annual NWC investment is
negligible.
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