suppose your company needs $43 million to build a new assembly line. your target debt-equity ratio is .75. the flotation cost for new equity is 6 percent, but the flotation cost for debt is only 2 percent. your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. Alpha Industries is considering a project with an initial cost of $7.5 million. The project will produce cash inflows of $1.55 million per year for 7 years. The project has thesame risk as the firm. The firm has a pretax cost of debt of 5.46 percent and a cost of equity of 11.17 percent. The debt-equity ratio is .55 and the tax rate is 21 percent. Whatis the net present value of the project?Multiple Choice$397,552$370,395$482,364$417,430$263,559aft

Given,Initial Cost = $7.5 millionCash Inflow = $1.55 millionTime = 7 yearsPretax Cost of Debt = 5.46%Cost of Equity = 11.17%Debt-Equity Ratio = 0.55Tax Rate = 21%Calculation of WACC: After Tax Cost of Debt = Pretax Cost of Debt×( 1- Tax Rate) = 5.46%×(1-21%)= 4.31% WACC is 4.31%. Calculation is as below: Particular Ratio Weight = Ratio/Total Cost WACC = Weight*Cost Debt 0.55 0.3548387097 0.0431 0.01529354839 Equity 1 0.6451612903 0.1117 0.07206451613 Total 1.55 0.08735806452Calculation of NPV: Year Cash Flow Discounting Factor @ 0.08735806452 (r) Discounted Cash Flow = r*CashFlow 0 7500000 1 7500000 1 1550000 0.9196602597 1425473.403 2 1550000 0.8457749933 1310951.24 3 1550000 0.77782565 1205629.757 4 1550000 0.7153353392 1108769.776 5 1550000 0.6578654839 1019691.5 6 1550000 0.6050127417 937769.7497 7 1550000 0.5564061752 862429.5715 NPV = Sum(Discounted CashFlow) 15370715