What is the value of a project with average

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Suppose Marc Technologies has an equity cost of capital of 8%, market capitalization of $6.8 billion, and an enterprise value of $10.2 billion. Suppose Marc's debt cost of capital is 4.1% and its marginal tax rate is 25%.

a. What is Marc's WACC?

b. If Marc maintains a constant debt-equity ratio, what is the value of a project with average

risk and the following expected free cash flows?

c. If Marc maintains its debt-equity ratio, what is the debt capacity of the project in part (b) every year (0,1,2 and 3)?

d. What is the unlevered value of the project?

e. What is the interest tax shields from the project every year (1,2 and 3)? What is their present value?

f. Show that the APV of Marc Technologies' project matches the value computed using the WACC method (in question b).

Reference no: EM132812924

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