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P. 5
THE FINANCING DECISION
Financing decision
First decision:
Does the company have capacity to raise debt finance?
The current market values of a company apply:
Equity R10 000 000
Debt R8 000 000
Example
The company wishes to invest R4 000 000 in a new project. It has
evaluated the project at the Target WACC which showed a positive NPV.
The company now wishes to know how it should finance the project given
that the target debt : equity ratio is 50:50.
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