QUESTION 6 Your company is considering a new investment project. The investment cost is expected...
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QUESTION 6 Your company is considering a new investment project. The investment cost is expected to be $23.50 million and will return $7 40 milion for 5 years in net cash flows. The ratio of debt to equity (D/E) is 2.5 to 1. The cost of equity is 14%, the pretax cost of debt is 6.5%, and the tax rate is 25%. Assuming average risk, what is the appropriate discount rate (WACC)? (Hint: for ease of calculation, you can assign dollar values to debt and equity so that the D/E ratio 2.5)
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