Cost of debt capital
Cost of debt capital
Tiki Bar has a cost of equity capital of 15%, a before-tax cost of debt of 8%, and a debt to equity ratio of .40, with a tax rate of 35%. It is considering a
100 million dollar investment today that will yield annual incremental after-tax cash flows of 30 million per year for 5 years. They borrow the money to make
this investment, but will work to upkeep a debt/equity ratio of .40. What is the NPV of this investment?
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