Suppose that your firm consists of $50M in cash. Specifically, your firm consists of $10M in debt (issued in perpetuity) and $40M in equity.

Suppose that your firm consists of $50M in cash. Specifically, your firm consists of $10M in debt (issued in perpetuity) and $40M in equity. You announce that you will take this $50M in cash and invest it into a project that will produce expected after-tax free cash flows of $12.5M in perpetuity. Assume a tax rate of 30 percent. You would like to value this project (and hence your firm) by utilizing the weighted average cost of capital with taxes.Assume throughout the problem that the correct expected return on equity is 20 percent and the correct expected return on debt is 5 percent.a) Based on the numbers given in the problem, calculate the WACC with taxes.b) Using the WACC with taxes, calculate the value of the firm.You might have noticed that the value of the firm that you calculated in (b) is inconsistent with the value of the firm you used to calculate the WACC with taxes ($50M) in part (a). That is, the WACC with taxes you used to value the firm is not internally consistent with the value of the firm used to calculate WACC with taxes. This is a problem when you use WACC with taxes to calculate the value of a project and the project in turn significantly affects the inputs for calculating WACC with taxes.c) What is the correct firm value and WACC with taxes?Hint: you will have to “guess” a value for the firm and calculate WACC with taxes (keep in mind that the value of debt will always equal $10M). Then, using this WACC with taxes, calculate the value of the firm by applying the WACC with taxes to the $12.5M perpetuity. If this calculated value equals your “guess”, then you have the correct value of the firm and WACC with taxes. If it does not equal your guess, you will have to try again until the calculated value equals your guess. Microsoft Excel, particularly the Solver function, might be useful when answering this question.

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper
Calculate the price
Make an order in advance and get the best price
Pages (550 words)
$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with Essay Fountain
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Marketing
Excellent and thank you!
Customer 452591, December 12th, 2020
Arts and Applied Science
Thank you, I will provide more details after the discussion is graded.
Customer 452919, February 1st, 2025
English 3311- Professional Writing
Thank you, it looks good!
Customer 452919, January 28th, 2023
Computer science
Thank You
Customer 453099, August 28th, 2022
Sociology
Thank you
Customer 452919, September 2nd, 2024
Sociology
Thank you Team!
Customer 452919, April 5th, 2022
Other
Should have been around social worker in the UK but I can adapt it.
Customer 453101, August 5th, 2022
Logistics
The presentation slides were not narrated as asked per the instructions.
Customer 452623, September 28th, 2021
Health Care
Thank you for getting this paper done in a timely manner
Customer 452641, February 20th, 2021
Natural Sciences
Revision in a short period of time!
Customer 452947, November 9th, 2021
Sociology
Thank you for following the guidelines of the discussion essay. We are off to a great start.
Customer 452919, March 20th, 2024
History
Thank you
Customer 452919, October 17th, 2024
11,595
Customer reviews in total
96%
Current satisfaction rate
3 pages
Average paper length
37%
Customers referred by a friend
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat