Adequate information: Debt-equity ratio D/E = 0.65 Debt D = 0.65 Equity E = 1 Capital required K = $1,850,000 Cost of equity k e = 11% After-tax cost of debt k d = 4.3% Growth rate g = 3% Adjustment factor A f = 2% To compute: To identify the circumstances under which the project should be taken or not. Introduction: Breakeven cost refers to the equilibrium point where the company is at the no profit no loss stage.

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Chapter 13, Problem 16QAP

Summary Introduction

Adequate information:

Debt-equity ratio D/E = 0.65

Debt D = 0.65

Equity E = 1

Capital required K = $1,850,000

Cost of equity ke = 11%

After-tax cost of debt kd = 4.3%

Growth rate g = 3%

Adjustment factor Af = 2%

To compute: To identify the circumstances under which the project should be taken or not.

Introduction: Breakeven cost refers to the equilibrium point where the company is at the no profit no loss stage.

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