What is the maximum initial investment

Reference no: EM13261031

Julie's Juicers Corp. has $500,000,000 market value of equity and $800,000,000 market value of debt. JJC is considering a new product line that will generate pre-tax expected annual cash flows (fully taxable, were there no debt) of $21,000,000. JJC faces a 32% tax rate. JJC is planning to maintain its current leverage ratio, no matter what happens in the future. What is the maximum initial investment for which this project is acceptable if the pre-tax required return on debt is 8% and the required return on equity is 18%?

Reference no: EM13261031

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