4. Suppose Xpet Inc. is 100% equity financed and has an equity cost of capital of 6.2% per annum. The firm wants to laun

[answerhappygod]

4 Suppose Xpet Inc Is 100 Equity Financed And Has An Equity Cost Of Capital Of 6 2 Per Annum The Firm Wants To Laun 1 (27.29 KiB) Viewed 28 times

4. Suppose Xpet Inc. is 100% equity financed and has an equity cost of capital of 6.2% per annum. The firm wants to launch a new project, which requires an initial investment of €400000 now. The project will last for 7 years and generate net cash flows which are assumed to start in one year. The net cash flows will be €70 000 initially and then grow at 2.5% per annum. a. Calculate the NPV (Net Present Value) of this investment opportunity. Should the firm make the investment? (5p) b. Suppose that the average equity-to-debt ratio (E/D) for Xpet's industry is 80%. What would the cost of equity be if the firm took on the average debt ratio (D/E) for its industry at a cost of debt of 3.5%? (5) Fill in your answer here