Question

4, A proposed project lasts three years and has an initial investment of $200,000. The after-tax...

4, A proposed project lasts three years and has an initial investment of $200,000. The after-tax cash flows are estimated at $82,120 for year 1, $163,560 for year 2, and $179,200 for year 3. The firm has a target debt/equity ratio of 1.35. The firm's cost of equity is 16.18% and its cost of debt is 11.38%. The tax rate is 34%. What is the NPV of this project?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Please refer to the image below for the solution-

Do let me know in the comment section in case of any doubt.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
AMC has a project that will last 7 years and have an initial investment of $1,400,000....
AMC has a project that will last 7 years and have an initial investment of $1,400,000. The after tax cash flows are estimated at $315,000 per year. The targeted debt-to-equity ratio of 1.5. Its pre-tax cost of equity is 14%, and its pre-tax cost of debt is 8%. The tax rate is 40%. Solve for NPV.
Super corp. is considering a project that will result in initial after tax cash saving of...
Super corp. is considering a project that will result in initial after tax cash saving of $2.7 million at the end of the first year, and these savings will grow at a rate of 4 percent per year indefinitely. Super corp. has a target debt-equity ratio of 0.9, a cost of equity of 13%, and an after tax cost of debt of 4.8%. As the project is considered to be riskier than the firm’s existing projects, the management uses the...
Sallinger, Inc. is considering a project that will result in initial after-tax cash savings of $6...
Sallinger, Inc. is considering a project that will result in initial after-tax cash savings of $6 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debt-equity ratio of 0.75, a cost of equity of 16 percent, and an after-tax cost of debt of 7 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective...
Cherry Creek Inc. is considering expanding to another city; the project will cost $50,000 and is...
Cherry Creek Inc. is considering expanding to another city; the project will cost $50,000 and is expected to generate after-tax cash flows of $10,000 per year in perpetuity. The firm has a target debt/equity ratio of 0.5 and the new equity has a flotation cost of 10% and a required return of 15%, while new debt has a flotation cost of 5% and a required return of 10%. The tax rate is 34%. a. Calculate the cost of capital. b....
A proposed investment has a project life of four years. The necessary equipment will cost of...
A proposed investment has a project life of four years. The necessary equipment will cost of $1,200, and have a useful life of 4 years. The cost will be depreciated straight-line to a zero salvage value, but will have a market worth $500 at the end of the project’s life. Cash sales will be $2,190 per year for four years and cash costs will run $670 per year. Fixed cost is $176 per year. The firm will also need to...
An investment project has the following cash flows: initial cost = $1,000,000; cash inflows = $200,000...
An investment project has the following cash flows: initial cost = $1,000,000; cash inflows = $200,000 per year for eight years. If the required rate of return is 12%: i) Compute the project’s NPV. What decision should be made using NPV? ii) Compute the project’s IRR. How would the IRR decision rule be used for this project, and what decision would be reached?
Antonio's is analyzing a project with an initial cost of $31,000 and cash inflows of $27,000...
Antonio's is analyzing a project with an initial cost of $31,000 and cash inflows of $27,000 a year for 2 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 0.5. The pre-tax cost of debt is 9.6 percent and the cost of equity is 12.3 percent. The tax rate is...
A company is considering a project with the following cash flows: Initial Investment = -$200,000 Cash...
A company is considering a project with the following cash flows: Initial Investment = -$200,000 Cash Flows: Year 1 = $140,000                      Year 4 = $80,000                      Year 5 = $120,000 If the appropriate discount rate is 12%, what is the NPV of this project?
A company is considering a project with the following cash flows: Initial Investment = -$200,000 Cash...
A company is considering a project with the following cash flows: Initial Investment = -$200,000 Cash Flows: Year 1 = $140,000 Year 4 = $80,000 Year 5 = $120,000 If the appropriate discount rate is 12%, what is the NPV of this project?
Alpha Industries is considering a project with an initial cost of $7.7 million. The project will...
Alpha Industries is considering a project with an initial cost of $7.7 million. The project will produce cash inflows of $1.35 million per year for 9 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.52 percent and a cost of equity of 11.21 percent. The debt–equity ratio is .57 and the tax rate is 35 percent. What is the net present value of the project? Multiple Choice $522,185 $346,351...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT