What is the value of project

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Consider a project with expected annual revenues of €120 and costs of €50 in perpetuity. While revenues vary with the overall business risk, costs are fixed at €50 per year. Suppose the project has a debt-to-capital ratio of 50%, an equity beta of 1.1, the risk-free interest rate is 5%, and the expected return of the market is 10%. The project is partially financed by a bond issue with an A- rating that corresponds to a 2% spread over the risk-free rate. Assume a marginal tax rate of 30%. What is the value of this project?

Reference no: EM133122978

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