Question

The Benton Corporation is evaluating a new project. It will be financed with $1.4 million of debt and $1.6 million of equity. The (unleveraged) after-tax cash flows (CFATs) expected to result from the investment are $1.35 million per year for the next three years, after which time the project is expected to be sold for a net after-tax amount of $0.85 million. The debt financing will be a three-year debt with interest payments of 6% per year on the remaining balance. Principal payments will be $500,000 in year 1 (end of first year), $400,000 in year 2 (end of second year), and $500,000 at the end of year 3. The net benefit-to-leverage factor, T*, is 0.20 for this investment. The (unleveraged) required return for the project is 14%.

Which of the following statements is (are) true? Group of answer choices The net APV is $940,919.21 The net APV is $839.673.49 The net APV is $738,427.76 The project should be accepted The project should be rejected The use of APV makes sense for evaluating this project because it is funded separately from the firm.

Answer 1