1- Consider a project of the Pearson Company. The timing and size of the incremental after-tax cash flows for an all-equity firm are $-2000, $305, $610, $5, $500 from year 0 to 4 respectively. The unlevered cost of equity is 30%. a. Calculate the NPV? Should this project be accepted?
1- Consider a project of the Pearson Company. The timing and size of the incremental after-tax cash flows for an all-equity firm are $-2000, $305, $610, $5, $500 from year 0 to 4 respectively. The unlevered cost of equity is 30%. a. Calculate the NPV? Should this project be accepted?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1- Consider a project of the Pearson Company. The timing and size of the incremental after-tax
cash flows for an all-equity firm are $-2000, $305, $610, $555, $500 from year 0 to 4 respectively.
The unlevered cost of equity is 30%.
a. Calculate the NPV? Should this project be accepted?
b. The firm finances the project with $20000 debt at 11% with $100 after-tax flotation costs.
Principal is repaid at $3000 per year with added interest. Pearson's tax rate is 60%. The net
present value of the project under leverage? Now, Should this project be accepted?
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