Wacc is the weighted average cost of capitalapv is adjusted, Ask an Expert

Finance

WACC is the Weighted Average Cost Of Capital

APV is Adjusted Present Value

Solutions given by professor

a) r* = .1057

b) APV = 73.9986

c) APV = 73.9986 , r = .1158

What are the steps by steps solution to this problem?

Problem 7.3. The Fulsome Gas Co. is evaluating a new energy project.

An investment of $112.4 million is required, and the project is forecasted to generate future cash flows of $19.7 million per year in perpetuity. Fulsome has a current market value of $2.65 billion.

It maintains a target debt ratio of 25%, and the returns on its debt and equity are estimated to be 5.5% and 12.9%, respectively. Fulsome faces a tax rate of 35%. Ignore brokerage costs.

a. Calculate the WACC for Fulsome.

b. Calculate the APV of the project using method. Calculate the APV of the project using the conventional method.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93038953

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