A ﬁrm is considering a project that will generate perpetual cash ﬂows of $15,000 per year beginning next year. The project has the same risk as the ﬁrm's overall operations and must be
ﬁnanced externally. Equity costs 14% and debt costs 4% on an after-tax basis. The ﬁrm's D/E ratio is
0)8. What is the most the ﬁrm can pay for the project and still earn its required return?

Question

Quizplus · Accepted Answer

The Answer of A ﬁrm is considering a project that will generate perpetual cash ﬂows of $15,000 per year beginning next year. The project has the same risk as the ﬁrm's overall operations and must be
ﬁnanced externally. Equity costs 14% and debt costs 4% on an after-tax basis. The ﬁrm's D/E ratio is
0)8. What is the most the ﬁrm can pay for the project and still earn its required return?

A ﬁRm Is Considering a Project That Will Generate Perpetual