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Determine the maximum amount the firm should spend

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Question - Bob's Taco Shop is considering a project that will generate a cash inflow of $15 million in year one. The project's cash flow will then grow at 1 percent per year in perpetuity.

The firm finances 45 percent of all assets with debt, and the after-tax cost of debt is 3 percent. The firm estimates the cost of equity is 11 percent.

Calculate the firm's WACC and then use the WACC to determine the maximum amount the firm should spend to undertake this project.

Reference no: EM133183659

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