Calculate the levered NPV using the flow-to-equity

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Question - BC-Boston is planning on introducing a new line of saxophones. They expect sales to be $200,000 with total fixed and variable costs representing 70% of sales. The discount rate on the unlevered equity is 17%, but the firm plans to raise $77,820 of the initial $150,000 investment as 9% perpetual debt. The corporate tax rate is 34% and the target debt to value ratio (or debt ratio) is 0.3.

Required -

1. Calculate the all equity NPV assuming no debt.

2. Calculate the levered NPV using the flow-to-equity.

Reference no: EM132618813

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