Answers
Equity Market Value = 2,000,000 * 12.87 = 25,740,000
Debt Market Value = 16,000,000 * 89% = 14,240,000
Toal Capital = 25,740,000 + 14,240,000 = 39,980,000
Cost of Equity = Rf + beta * Market Risk Premium
= 4% + 1.49 * 8%
= 15.92%
WACC = (Cost of Equity * Weight of Equity) + (Cost of Debt after tax * Weight of Debt)
= 15.92% * 25,740,000 / 39,980,000 + 10% * (1-0.38) * 14,240,000 / 39,980,000
= 12.46%
NPV = Present Value of Cash Inflow - Initial Outlay
= Annual Earnigns * PVAF (12.46%, 8 years) - 47,380,000
= 11,000,000 mn * 4.8880637914 - 47,380,000
= 6,396,870
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