Question

11) Company Z Prime has an investment opportunity costing $ 19 million today and providing cash flows $ 5 million, $ 9 million and $ 7.1 million for 1, 2 and 3 years from now respectively. If the required return of the project is 8% what is the Net Present Value (NPV) of this project?

12) Company U has no debt outstanding currently and the cost of equity is 12%. Its EBIT is expected to be $ 186335 every year forever. The tax rate is 35%.

Calculate the value of the firm.

13) Continuing with previous question.

Company U has no debt outstanding currently and the cost of equity is 12%. Its EBIT is expected to be $ 186335 every year forever. The tax rate is 35%.

Calculate the value of the firm if it borrows $ 434273 and uses the proceeds to repurchase the shares. Company U can borrow at 6% (cost of debt).

14) Continuing with previous question.

Company U has no debt outstanding currently and the cost of equity is 12%. Its EBIT is expected to be $ 186335 every year forever. The tax rate is 35%.

Firm borrows $ 434273 and uses the proceeds to repurchase the shares. Company U can borrow at 6% (cost of debt).

What is the debt to equity ratio of the company after the change in the capital structure? Express you answer as %.