A new firm considering a project with an initial cost of $27,000. The project will produce a cash inflows of $16,000 at the end of the first year and $5,000 at the end of each of the following three years. The project has the same risk as the firm. The firm has a pretax cost of debt of 6% and a cost of levered equity of 10%. The debt-equity ratio is 0.36 and the tax rate is 20%. What is the net present value of the project?

A new firm considering a project with an initial cost of $27,000. The project will produce a cash inflows of $16,000 at the end of the first year and $5,000 at the end of each of the following three years. The project has the same risk as the firm. The firm has a pretax cost of debt of 6% and a cost of levered equity of 10%. The debt-equity ratio is 0.36 and the tax rate is 20%. What is the net present value of the project?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 3MC: Tropical Sweets is considering a project that will cost $70 million and will generate expected cash...

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