Burger World Inc considers an expansion project. It currently has 10 million outstanding shares trading at $30 per share
Posted: Sun May 08, 2022 10:38 am
Burger World Inc considers an expansion project. It currently
has 10 million outstanding shares trading at $30 per share. Equity
has an estimated beta of 1.5. The risk-free rate is 2.5%, while the
market risk premium is 5%. It also has 200,000 outstanding bonds
with 20 years to maturity, 8% coupon rate, $1,000 par, currently
trading at par. The corporate tax rate is 25%. The project will
require an investment if $100 million and will produce a net after
tax cash flow of $15 million per year for 20 years. Calculate the
WACC (Weighted Average Cost of Capital), the project NPV and
determine whether Burger World should accept the project?
has 10 million outstanding shares trading at $30 per share. Equity
has an estimated beta of 1.5. The risk-free rate is 2.5%, while the
market risk premium is 5%. It also has 200,000 outstanding bonds
with 20 years to maturity, 8% coupon rate, $1,000 par, currently
trading at par. The corporate tax rate is 25%. The project will
require an investment if $100 million and will produce a net after
tax cash flow of $15 million per year for 20 years. Calculate the
WACC (Weighted Average Cost of Capital), the project NPV and
determine whether Burger World should accept the project?