Suppose the Ludic Ventures company has both debt and equity trading in markets. The firm’s current...

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Suppose the Ludic Ventures company has both debt and equitytrading in markets. The firm’s current market value of equity is$14,010,000 and the market value of its debt is $11,704,545. Assumethe tax rate is 30%.
The firm has twelve thousand bonds outstanding which mature 1year from now. Each bond has a face value of $1000 and an annualcoupon. The coupon rate is 3%. A coupon payment has just been paid.You may assume the risk-free rate of return is 2% and the expectedreturn of the market portfolio is 6%. The firm has an equity betaof 1.534.
The company is currently facing an investment opportunity withrisk equivalent to the company’s current operations. The projecthas an initial cash outflow of $1,000,000, and the project isexpected to have perpetual cash inflows after the initial date suchthat the payback period of the project is 19 years.
Ignore depreciation, and assume that the current capitalstructure will remain constant. Compute the NPV of the project, anddecide whether the company should proceed with this project.

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Suppose the Ludic Ventures company has both debt and equitytrading in markets. The firm’s current market value of equity is$14,010,000 and the market value of its debt is $11,704,545. Assumethe tax rate is 30%.The firm has twelve thousand bonds outstanding which mature 1year from now. Each bond has a face value of $1000 and an annualcoupon. The coupon rate is 3%. A coupon payment has just been paid.You may assume the risk-free rate of return is 2% and the expectedreturn of the market portfolio is 6%. The firm has an equity betaof 1.534.The company is currently facing an investment opportunity withrisk equivalent to the company’s current operations. The projecthas an initial cash outflow of $1,000,000, and the project isexpected to have perpetual cash inflows after the initial date suchthat the payback period of the project is 19 years.Ignore depreciation, and assume that the current capitalstructure will remain constant. Compute the NPV of the project, anddecide whether the company should proceed with this project.