EBK PRINCIPLES OF CORPORATE FINANCE
12th Edition
ISBN: 9781259358487
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 33, Problem 5PS
Summary Introduction
To explain: The reason why market-based financial systems are better suited in supporting innovation and also while releasing capital from the declining industries.
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Estefan Industies has a new project available that requires an initial investment of sex million. The project will provide unlevered cash flows of $925,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of 35. The company's bonds have a YTM of 5.9 percent. The companies with operations comparable to this project have unlevered betas of 1.09, 1.17, 1.28, and 1.20. The risk-free rate is 3.6 percent, and the market risk premium is 7 percent. The tax rate is 21 percent. What is the NPV of this project?
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