How much debt should a project take?



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Assume that a project's expected return is $180 million in 5 years for an initial investment of $100 million? How much debt should this project take to get a 10% ROI after debt payback? Assume 10% interest on the debt.

Can you please explain me the answer to this?

2 Answer(s)


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Ishaan. That question should acutally read "How much debt should this project take to get a 110% ROI" and not "10% ROI". Sujith. That question should acutally read "How much debt should this project take to get a 110% ROI" and not "10% ROI". Sorry about that one. We will fix that.

In that case initial equity investment is $50mn, debt is $50mn, 5 years interest is $25mn (5mnx5), return is $180mn. So profit is 180-50-25 = $105mn. Hence $105mn was returned on a $50mn equity investment. So returns is 110%

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