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Constance is contemplating an average-risk investment costing $15 million that promises an annual after-tax cash flow of $2 million in perpetuity. a. What is the internal rate of return on the investment? Hint: Use the perpetuity equation from Chapter 7

01 / 10 / 2021 Assignment

This paper circulates around the core theme of Constance is contemplating an average-risk investment costing $15 million that promises an annual after-tax cash flow of $2 million in perpetuity. a. What is the internal rate of return on the investment? Hint: Use the perpetuity equation from Chapter 7 together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.

You have the following information about Constance Security, a lock manufacturer:

Equity Shares Outstanding

10 million

Stock price per share

$20.00

Yield to maturity on debt

8.00%

Book value of interest-bearing debt

$135 million

Coupon interest rate on debt

6.00%

Market value of debt

$130 million

Book value of equity

$80 million

Cost of equity capital

12%

Tax rate

40%

Constance is contemplating an average-risk investment costing $15 million that promises an annual after-tax cash flow of $2 million in perpetuity. a. What is the internal rate of return on the investment? Hint: Use the perpetuity equation from Chapter 7’s DCF discussion. b. What is Constance%u2019s weighted average cost of capital? c. If undertaken, would you expect this investment to benefit shareholders? Why or Why not?



International House, 12 Constance Street, London, United Kingdom,
E16 2DQ

Company # 11483120

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