What is the projects apv in the cases

Reference no: EM13201805

1. Calculate the weighted-average cost of capital (WACC) for Federated Junkyards of America, using the following information:

Debt: $75,000,000 book value outstanding. The debt is trading at 90% of book value. The yield to maturity is 9%.
Equity: 2,500,000 shares selling at $42 per share. Assume the expected rate of return on Federated's stock is 18%.
Taxes: Federated's marginal tax rate is Tc = .35.

2. A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0). What is the project's APV in the following cases?

a. If the firm invests, it has to raise $500,000 by a stock issue. Issue costs are 15% of net proceeds.

b. If the firm invests, its debt capacity increases by $500,000. The present value of interest tax shields on this debt is $76,000.

Reference no: EM13201805

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