Maple, Inc

Finance Sep 19, 2020

Maple, Inc. is considering a new investment project. The investment cost is expected to be $28.40 million and will return $13 million for 5 years in net cash flows. The ratio of debt to equity (D/E) is 1.8 to 1. The cost of equity is 12%, the pretax cost of debt is 6.4%, and the tax rate is 25%. The appropriate discount rate (WACC), assuming average risk, is:

Expert Solution

Appropriate Discount Rate = Cost of Equity* Weight of Equity + After Tax Cost of Debt*Weight of Debt

= 12* 1/ 2.8 + 6.4* (1-.25)* 1.8/ 2.8

= 7.37%

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote