Powerade will invest $50 million in a project that will be funded completely by debt initially. Subsequent to year 0, the company's debt outstanding and free cash flows are given below: Year Free cash flows Debt 0 -50 50 2 20 15 Cost of debt for the firm is 8%, the tax rate is 40%. The levered cost of equity for the project is 20.55%. Use the FTE method to calculate the project's equity value. $72.14 $22.14 $39.09 $9.09 1 40 30 3 25 0

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter16: Working Capital Policy And Short-term Financing
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Qd 207.

Powerade will invest $50 million in a project that will be funded completely by debt initially. Subsequent to
year 0, the company's debt outstanding and free cash flows are given below:
Year
Free cash flows
Debt
0
-50
50
$72.14
$22.14
$39.09
$9.09
1
40
30
2
20
15
Cost of debt for the firm is 8%, the tax rate is 40%. The levered cost of equity for
the project is 20.55%. Use the FTE method to calculate the project's equity value.
3
25
0
Transcribed Image Text:Powerade will invest $50 million in a project that will be funded completely by debt initially. Subsequent to year 0, the company's debt outstanding and free cash flows are given below: Year Free cash flows Debt 0 -50 50 $72.14 $22.14 $39.09 $9.09 1 40 30 2 20 15 Cost of debt for the firm is 8%, the tax rate is 40%. The levered cost of equity for the project is 20.55%. Use the FTE method to calculate the project's equity value. 3 25 0
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