Using the weighted average cost of capital

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A firm is proposing to undertake a scale expansion. It would cost $40 million and produce an expected cash flow of $5 million a year in perpetuity before it is taxed at the corporate rate of 34%. The firm is financed 40% by debt. The expected return on the firm's equity is 20% and the interest rate on its debt is 12%. What is the NPV of the project using the weighted average cost of capital?

Reference no: EM13933418

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