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Compute the npv of the expansion project

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Reference no: EM132986159

QUESTION - Vasivenyu Engineering currently has a target debt-equity ratio of 4:5. It is evaluating a proposal to expand capacity which is expected to cost $4,5 million and generate after-tax cash flows of $1 million per year for the next 10 years. The tax rate for the company is 25%. Two financing options are being looked at:

Issue of equity stock. The required return on the company's new equity is 18%, The issuance cost will be 10%.

Issue of debentures carrying a yield of 12%. The issuance cost will be 2%.

Required - Compute the NPV of the expansion project.

Highlight and briefly explain any five factors which may affect the weighted average cost of capital (WACC) of a firm.

Reference no: EM132986159

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