1. A project requires an initial investment of $20 millions. The project is expected to generate $2.25 millions in after-tax cash flows each year forever. If the weighted average cost of capital (WACC) is 10% calculate the NPV of the project.
4.11 million
5.15 million
3.67 million
2.50 million
2. FCF1 = $10 million; FCF2 = $15 million; free cash flow grows at a rate of 4% for year 3 and beyond. If the weighted average cost of capital is 14%, calculate the value of the firm.
a. $170.72 million
b. $153.33 million
c. $140.35 million
d. $166.73 million
3. A firm has a market equity value of $20 million and debt has a market value of $10 million. What is the after tax weighted average cost of capital (WACC) if the before tax cost of debt is 6%, the cost of equity is 21% and the tax rate is 20%?
a. 18.70%
b. 16.14%
c. 17.66%
d. 15.60%