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
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10 million
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Stock price per share
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$20.00
|
Yield to maturity on debt
|
8.00%
|
Book value of interest-bearing debt
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$135 million
|
Coupon interest rate on debt
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6.00%
|
Market value of debt
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$130 million
|
Book value of equity
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$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?