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Dealer Corp. is contemplating a project that will generate perpetual sales of $800,000. Cash costs are expected to be 75% of sales. The company pays taxes at a 40% rate. The company is currently unlevered and has a cost of equity of 18%. The company's target financing mix is to finance 50% of its assets with debt. In keeping with that goal the company is contemplating financing $125,000 of the initial investment of $630,000 for the project with debt paying a 10% interest rate. If they do utilize the debt financing contemplated, what will be the present value of the project? The CEO, Bernard Vader, insists that you make the calculation using the flow-to-equity approach.

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  • Category:- Basic Finance
  • Reference No.:- M941321

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