Solution-Explain five factors which may affect weighted

Explain five factors which may affect weighted average cost

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Reference no: EM132951248

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

Problem 1: Compute the NPV of the expansion project.

Problem 2: Highlight and briefly explain any five factors which may affect the weighted average cost of capital (WACC) of a firm.

Problem 3: Briefly describe any five misconceptions surrounding the cost of capital.

Reference no: EM132951248

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Explain five factors which may affect weighted average cost

Reference no: EM132951248

Reference no: EM132951248

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