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Sagot :
Answer:
Explanation:
After tax cost of debt = 5.85%*(1 - Tax rate)
After tax cost of debt = 5.85%*(1 - 0.4)
After tax cost of debt = 3.51%
Debt-equity ratio = Debt/Equity
Hence, debt = 0.68equity. Let equity be $x. Debt = $0.68x
Total = $1.68x
WACC = Respective costs * Respective weights
WACC = (x/1.68x*11.43%) + (0.68x/1.68x*3.51%)
WACC = 8.224285714%
Present value of annuity= Annuity*[1-(1+interest rate)^-time period] / rate
= $1.68*[1-(1.08224285714)^-8]/0.08224285714
= $1.68*5.698047502
= $9.572719803 million
NPV = Present value of inflows - Present value of outflows
= $9.572719803 million - $8.8 million
= $772,720
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