Use the information for the question(s) below.
Omicron Industries' Market Value Balance Sheet ($ millions) and Cost of Capital
Omicron Industries' New Project Free Cash Flows
Assume that this new project is of average risk for Omicron and that the firm wants to hold constant its debt-to-equity ratio.
-The debt capacity for Omicron's new project in year 0 is closest to:

Question

Use the information for the question(s) below.
Omicron Industries' Market Value Balance Sheet ($ millions) and Cost of Capital
  Omicron Industries' New Project Free Cash Flows
  Assume that this new project is of average risk for Omicron and that the firm wants to hold constant its debt-to-equity ratio.
-The debt capacity for Omicron's new project in year 0 is closest to:

Quizplus · Accepted Answer

C) r_wacc = 11ea7e5a_6edb_db47_9a0a_8dea34396124_TB1623_11 r_E + 11ea7e5a_6edb_db48_9a0a_cfcc29fec71a_TB1623_11 r_D(1 - τ_c), where D = net debt = Debt - Cash r_wacc = 11ea7e5a_6edb_db49_9a0a_3d3e799b833a_TB1623_11 (.12) + 11ea7e5a_6edb_db4a_9a0a_09e5bf37f2da_TB1623_11 (.06)(1 - .35) = .0876 11ea7e5a_6edc_025b_9a0a_85a6079a7bc0_TB1623_11 = 11ea7e5a_6edc_025c_9a0a_9b0382f8c71e_TB1623_11 + 11ea7e5a_6edc_025d_9a0a_6f7b0d17a7c7_TB1623_11 + 11ea7e5a_6edc_025e_9a0a_d99a3346b7ea_TB1623_11 = $125.69 D₀ = d × 11ea7e5a_6edc_296f_9a0a_c77c7f144774_TB1623_11 D₀ = 11ea7e5a_6edc_2970_9a0a_df2834f042ce_TB1623_11 ($125.69) = $50.28

Use the Information for the Question(s) Below