XYZ Corp. has 15 million shares of common stock outstanding. The common stock currently sells for $60 per share and has

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Xyz Corp Has 15 Million Shares Of Common Stock Outstanding The Common Stock Currently Sells For 60 Per Share And Has 1 (41 KiB) Viewed 82 times

XYZ Corp. has 15 million shares of common stock outstanding. The common stock currently sells for $60 per share and has a beta of 2. XYZ Corp. has 290,000 bonds outstanding and sell for 110% of par value. The ytm (yield to maturity) of the bond is 6% p.a. The market risk premium is 7%, T-bills are yielding 4% p.a and corporate tax rate is 25%. All p.a. rates are EAR. What is the firm's market value capital structure (i.c. Market value of debt/Market value of equity)? What is the firm's cost of capital? If XYZ Corp. is evaluating a new investment project that has an investment of $50 million at year 0 and is expected to have a cash flow of $20 million from Year 1 onwards growing at the rate of 5% p.a. forever, what is the NPV of the project? [10]