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FIN 401 : REVIEW CLASS for FIN 401.docx

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School
Ryerson University
Department
Finance
Course
FIN 401
Professor
Ron Babin

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Document Summary

Chapter 16: a firm has a capital structure of 40% debt and 60% equity. Debt can be issued at a return of 10%, while the cost of equity for the firm is 15%. The firm is considering a million expansion of their production facility. The project has the same risk as the firm overall and will earn million per year for 6 years. Ans: wacc = . 40*10%*(1-. 4) + . 60*15% = 11. 40% N = 6, i = 11. 40%, pv = ?, pmt = , fv = sh, pv = . 19. Npv = . 19 - = 0. 2 million. Current # of share = 1m, price =, bv = , ebit current = m. Expansion will increase ebit by m in perpetuity. If p/e ratio remains the same then calculate the book value and market value dilution. Step 1: calculate the total number of share outstanding before and after the expansion.

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