Michael's is analyzing a project with an initial cost of $45,000 and cash inflows of $30,000 a year for two years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt and common stock to finance their operations and maintains a debt-equity ratio of .40. The pre-tax cost of debt is 8 percent and the cost of equity is 12 percent. The tax rate is 34 percent. What is the projected net present value of this project? a. 5892.17 b. 6277.30 C. 6451.86 d. 6913.15 e. 7010.27

Michael's is analyzing a project with an initial cost of $45,000 and cash inflows of $30,000 a year for two years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt and common stock to finance their operations and maintains a debt-equity ratio of .40. The pre-tax cost of debt is 8 percent and the cost of equity is 12 percent. The tax rate is 34 percent. What is the projected net present value of this project? a. 5892.17 b. 6277.30 C. 6451.86 d. 6913.15 e. 7010.27

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 21P

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