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What is the asset cost of capital for the new division

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Reference no: EM133178498

Question 1 - Chae is valuing a new division and has identified a comparable firm which has an expected return on equity of 10%, an expected return on debt of 4%, and a D/E ratio of 0.3. What is the asset cost of capital for the new division?

Question 2 - (Using the information from the previous question) The division is expected to have a FCF of $6M one year from today. The yearly cashflows will increase by 3% per year, forever. Chae intends on keeping a constant D/E ratio of 1.0 for the division. If the division's debt yield is 4.5% and the corporate tax rate is 40%, what is the PV of the division's FCFs?

Reference no: EM133178498

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