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Question: Bubba's Bowling Inc. needs to purchase equipment for its 2,000 bowling alleys nationwide. The total cost of the equipment is $2 million. It is estimated that the before-tax cash inflows from the project will be $328,125 annually in perpetuity. Bubba's has a market value debt-to-equity ratio of .6667. The firm's cost of equity is 13%, its pre-tax cost of debt is 8%, and the flotation costs of debt and equity are 2% and 8%, respectively. The tax rate is 36%. Assume the project is of similar risk to the firm's existing operations.

1. What is the WACC?

2. What is the NPV of the project?

3. Should Bubba's accept or reject the project?

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Category:- Basic Finance
Reference No.:- M92787477

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