Asked by
Jessica Pal - CD | Burnaby
on Dec 09, 2024
Verified
The Justus Center is analyzing a project with an initial cost of $197,000 and cash inflows of $65,000 a year for 4 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 its operations and maintains a debt-equity ratio of.55. The pre-tax cost of debt is 9 %, the cost of equity is 14 %, and the tax rate is 35 %. What is the net present value of this project?
A) $4,194
B) $7,807
C) $9,911
D) $12,407
E) $16,873
Pre-Tax Cost
The expense or cost incurred by an entity before the deduction of taxes.
Net Present Value
A financial measure that computes the disparity between the present value of cash coming in and going out over a certain period.
- Calculate a project's Net Present Value (NPV) and grasp its essential importance in project appraisal.
- Employ cost of capital concepts like the weighted average cost of capital (WACC) in project analysis.
Verified Answer
MH
Learning Objectives
- Calculate a project's Net Present Value (NPV) and grasp its essential importance in project appraisal.
- Employ cost of capital concepts like the weighted average cost of capital (WACC) in project analysis.