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

Question

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

Quizplus · Accepted Answer

B) r_wacc = 11ea7e5a_6ede_4c6f_9a0a_a5ecb1245d57_TB1623_11 r_E + 11ea7e5a_6ede_4c70_9a0a_7ddaebb2bbf4_TB1623_11 r_D(1 - τ_c), where D = net debt = Debt - Cash r_wacc = 11ea7e5a_6ede_4c71_9a0a_d9cf9b3c5ea8_TB1623_11 (.14) + 11ea7e5a_6ede_4c72_9a0a_cf460e3ad5d2_TB1623_11 (.07)(1 - .35) = .1085 V₀^L = 11ea7e5a_6ede_4c73_9a0a_19c7278d2a19_TB1623_11 + 11ea7e5a_6ede_7384_9a0a_396ce0d257e9_TB1623_11 + 11ea7e5a_6ede_7385_9a0a_47b96a1b240f_TB1623_11 = $263.14 D₀ = d × 11ea7e5a_6ede_7386_9a0a_9ff140819e2c_TB1623_11 D₀ = 11ea7e5a_6ede_7387_9a0a_3df3440caf91_TB1623_11 ($263.14) = $87.71

Use the Information for the Question(s) Below