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Georgia Movie Company has a capital structure with 46.00% debt and 54.00% equity. The cost of...

Georgia Movie Company has a capital structure with 46.00% debt and 54.00% equity. The cost of debt for the firm is 9.00%, while the cost of equity is 14.00%. The tax rate facing the firm is 39.00%.

The firm is considering opening a new theater chain in a local college town. The project is expected to cost $12.00 million to initiate in year 0. Georgia Movie expects cash flows in the first year to be $2.56 million, and it also expects cash flows from the movie operation to increase by 4.00% each year going forward. The company wants to examine the project over a 14.00-year period.

A) What is the WACC for this project?

B) What is the NPV of this project? (express answer in millions, so 1,000,000 would be 1.00)

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Answer #1

WACC

=54%*14%+46%*9%*(1-39%)

=10.09%

NPV of this project

=-12+(2.56/(10.09%-4.00%))*(1-((1+4.00%)/(1+10.09%))^14)

=11.09 million

the above is answer..

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