Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Lebleu, Incorporated, is considering a project that will result in initial aftertax cash savings of $1.73 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt-equity ratio of .85, a
The answer I got is $24,749.643 and it is incorrect. This is my work Find WACC = (weight of debt x after tax cost of debt ) + (weight of equity x cost of equity) =(debt/total capital x after tax cost of debt ) + (equity/total capital x cost of equity) = (.85/1+.85 x 4.1%) + ( 1/1+.85 x 11.3%) = 1.883783878% + 6.108108 =7.99% Calculation of = after tax cash flow / discount rate = $1,730,000 / 9.99% - 3% = $1,730,000 / 6.99% = $24,749,642 |
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