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**Question**

1. Wynn Resorts Ltd., which develops and operates casinos around;the world, is deciding whether to open a new casino in Las Vegas.;The casino is expected to cost $1.4 billion to build and to bring in;$110 million per year in (after-tax) free cash flows over the next 20;years. It faces a marginal corporate tax rate of 40%. Suppose the;new casino is similar to other Wynn-operated casinos.;a. If Wynn and the new project are entirely equity-financed, what;variable(s) do you need to find the appropriate discount rate on;these cash flows and the NPV of those cash flows?;b. Suppose Wynn Resorts is levered at a target debt-to-assets ratio;of 20%. Its debt has a yield-to-maturity of 5%. Suppose the project;will not significantly change the firms leverage ratio or the;possibility of bankruptcy. What variable(s) do you need to find the;appropriate discount rate on these cash flows and the NPV of those;cash flows?;c. Suppose the firms opportunity cost of capital, E[rUA], is 15%.;The project will be financed by $1.4 billion in debt (with yield-tomaturity of 5%) that will be retired with equity over 7 years ($200;million each year). The project also increases the present value of;distress costs by $200 million. What variables do you need to find;the APV of this project?;d. Use publicly available data (ticker symbol WYNN) to get;estimated values of the variables needed for parts a, b, and c and;solve for the NPV (or APV) for each part. Make sure to clearly;state all your estimates (e.g. historical market premium, risk-free;rate, etc.) You will not be graded on your estimated values but on;whether you used them correctly in calculating NPV or APV.;View Full Attachment;Additional Requirements

Paper#15584 | Written in 18-Jul-2015

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