firm gets 100% of its capital from common stock. The equity holder’s required rate of return is 10% and the firm’s tax rate is 0%. The project involves an immediate investment of $13,000 for the purchase and installation of equipment. The equipment will be depreciated straight-line, over 4 years, down to a salvage value of $ 0. The project is expected to generate operating cashflows [=ebit(1-t)+dep] in the amount of $4,200 at the end of each of the next four years. Assume that at the end of the fourth year the related equipment is sold which generates an additional after-tax cashflow of $1,800. What is the weighted average cost of capital (WACC)? What are the total cashflows for each
The firm gets 100% of its capital from common stock. The equity holder’s required rate of return is 10% and the firm’s tax rate is 0%. The project involves an immediate investment of $13,000 for the purchase and installation of equipment. The equipment will be depreciated straight-line, over 4 years, down to a salvage value of $ 0. The project is expected to generate operating cashflows [=ebit(1-t)+dep] in the amount of $4,200 at the end of each of the next four years. Assume that at the end of the fourth year the related equipment is sold which generates an additional after-tax cashflow of $1,800.
What is the weighted average cost of capital (WACC)?
What are the total cashflows for each year (please indicate positive or negative)?
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