Discuss whether you would expect wacc method

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Reference no: EM133251849

Question - A project is expected to produce a cash flow of 2,250,000 in one year, and the cash flows are expected to grow at 2% rate per year perpetually. To finance the project, the firm issues a debt of $10 million and sells another $10 million worth of equity. Debt is issued with associated flotation costs of $20,000, while the equity has flotation cost of $40,000. The debt has 10% interest and 5 years to maturity, with principal repaid in a lump sum at the end of the fifth year. The equity has a required return of 12.8%. Both flotation costs can be amortized over a period of 5 years.

If the firm's tax rate is 20%, calculate the project's APV.

Discuss whether you would expect WACC method to give you a different answer, and if yes, then why.

Reference no: EM133251849

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