Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Question

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
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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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