Calculate the apv of the project using method

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Reference no: EM132051474

WACC is the Weighted Average Cost Of Capital

APV is Adjusted Present Value

Solutions given by professor

a) r* = .1057

b) APV = 73.9986

c) APV = 73.9986 , r = .1158

What are the steps by steps solution to this problem?

Problem 7.3. The Fulsome Gas Co. is evaluating a new energy project.

An investment of $112.4 million is required, and the project is forecasted to generate future cash flows of $19.7 million per year in perpetuity. Fulsome has a current market value of $2.65 billion.

It maintains a target debt ratio of 25%, and the returns on its debt and equity are estimated to be 5.5% and 12.9%, respectively. Fulsome faces a tax rate of 35%. Ignore brokerage costs.

a. Calculate the WACC for Fulsome.

b. Calculate the APV of the project using method. Calculate the APV of the project using the conventional method.

Reference no: EM132051474

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