A firm's after-tax cost of debt is 3%, and its cost of equity is 10%. It is considering a small project, with a similar risk profile to the rest of the firm. The project has up front cost of $7mn in year 0, and results in cash flows to the firm of $7.3mn in year 1 (and no cash flows thereafter). The project's NPV is equal to 0. What is the firm's debt-to-equity ratio?

A firm's after-tax cost of debt is 3%, and its cost of equity is 10%. It is considering a small project, with a similar risk profile to the rest of the firm. The project has up front cost of $7mn in year 0, and results in cash flows to the firm of $7.3mn in year 1 (and no cash flows thereafter). The project's NPV is equal to 0. What is the firm's debt-to-equity ratio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 6P

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