Exercise

Debt and equity financing

In the previous chapter, you were able to assume that your discount rate for the NPV calculation was solely based on a measure such as inflation.

However, in this chapter, you are the CEO of a new company that has outstanding debt and financing costs, which you will have to adjust for.

You will use the WACC as your discount rate in upcoming exercises.

For this exercise, assume you take out a $1,000,000 loan to finance the project, which will be your company's only outstanding debt. This loan will represent 50% of your company's total financing of $2,000,000. The remaining funding comes from the market value of equity.

Instructions

100 XP
  • Set the market value of your company's debt, mval_debt, equal to the amount of the loan you will be issuing to finance the project.
  • Set the market value of your company's equity, mval_equity, equal to the remaining amount of funding after the loan.
  • Calculate the total market value of your company's financing, mval_total, by taking the sum of the debt and equity.
  • Calculate and print the proportion of your company's financing from debt (percent_debt) and from equity (percent_equity).