I am really struggling with a question regarding debt/equity to finance a project and the waccc formula.
If a company wanted to invest in new machinery which cost 35m but would generate a cash flow of 1m a year however the company only had 15m in cash, with 10m of this needing to be used within the business meaning a 30m deficit in cash for the machinery if debt could be financed at 7% and return on equity being 20%
What is the wacc calculation to support debt being the more efficient way of financing the machinery?
The tax rate is 3%