The Effects of Debt Financing on Cashflows to Equity

In the analysis above, we assumed an additional capital expenditure of 50 Million BR in year 5, financed entirely with funds from equity; the cash flow to equity in year 5 (from exhibit 5.4) is -5,411 Million BR. If, instead, we had assumed the 50 Million BR had come from new borrowing, the cash flow to equity in year 5

a. will increase by 50 Million BR

b. will decrease by 50 Million BR

c. will remain unchanged Explain.

This spreadsheet allows you to estimate the cash flows to equity on a project

Exhibit 5.3: Estimated Net Income from Paper Plant Investment: Aracruz Cellulose
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