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Your ?rm is considering a $120 million investment to launch a new product line. The project is expected to generate a free cash flow of $20 million per year, and its unlevered cost of capital is 8%. To fund the investment, your ?rm will take on $72 million in permanent debt. The marginal corporate tax rate is 35%.
a) What is the NPV of the investment?
b) Now, suppose your ?rm will pay a 4% underwriting fee when issuing the debt. It will raise the remaining $48 million by issuing equity. In addition to the 7% underwriting fee for the equity issue, you believe that your firm's current share price of $39 is $4 per share less than its true value. What is the NPV of the investment?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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