Question: eshare project is going to be launched through both equity...
Question details
eShare project is going to be launched through both equity and debt capital. The capital details is given below:
- Equity: the project manager intends to build up a support fund for the initial capital outlay and working capital of $600,000 with 60% funded by equity.
Based on a listed company, he concluded the beta of 0.8 for the project. The government bond yield in 10 years is 2%. The market risk premium is found to be 5%.
- Debt: the manager just signed a deal with Commonwealth Bank to borrow the rest of the capital for 4%.
He also forecast the expected net cash flow of the project in the table below (the project is expected to run in 4 years:
| 1 | 2 | 3 | 4 | |
| Net cash flow | 50,000 | 100,000 | 450,000 | 400,000 |
Is the project feasible?
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