Considering new three year expansion project

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1. Carmax has a current price of $62. It also has 180 million shares outstanding and the market value of debt is $12,169 million. The company’s equity beta is 1.53. Its tax rate is 38%. Assume that the risk free rate is 3% and the market return is 10%. The company’s cost of debt is 2.2%. Compute the weighted average cost of capital (WACC) for Carmax.

2. Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.080 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $960,000 in annual sales, with costs of $384,000. If the tax rate is 33 percent and the required return on the project is 10 percent, the NPV for this project is $

Reference no: EM132028810

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