Net present value (CC Cushions Company)
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CC Cushions Company is a pillow maker that is considering a new capital investment project that requires a $40 million investment today. Next year, the project will generate expected pre-tax cash flows of $2 million, all of which are taxable. The following year, expected cash flows will grow by 2.5%, and constant annual growth will continue forever. Assume that the project will always be backed by debt equal to 60% of the contemporaneous project value. The tax rate is 34%, debt will have a required return of 6%, and equity will have a required return of 9%.
What is the project net present value (NPV) according to the WACC method?
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Solution Summary
Calculates the project net present value (NPV) according to the WACC method.
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Please see the **attached EXCEL** file for all the details.
CC Cushions Company is a pillow maker that is considering a new capital investment project that requires a $40 million investment today. Next year, the project will generate expected pre-tax cash flows of $2 million, all of which are taxable. The following year, expected cash flows will grow by 2.5%, and constant annual growth will continue forever. Assume that the project will always be backed by debt equal to 60% of the contemporaneous project value. The tax rate is 34%, debt will have a ...
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