Bob's is a retail chain of specialty hardware stores. The firm has 18,000 shares of stock outstanding that are currently valued at $82 a share and provide a rate of return of 13.2 percent. The firm also has 600 bonds outstanding that have a face value of $1,000, a market price of $1,032, and a coupon rate of 7 percent. These bonds mature in 7 years and pay interest semiannually. The tax rate is 21 percent. The firm is considering expanding by building a new superstore. The superstore will require an initial investment of $9.3 million and is expected to produce cash inflows of $1.07 million annually over its 10-year life. The risks associated with the superstore are comparable to the risks of the firm's current operations. The initial investment will be depreciated on a straight-line basis to a zero book value over the life of the project. At the end of the 10 years, the firm expects to sell the superstore for an aftertax value of $4.7 million. Should the firm accept or reject the superstore project and why? Multiple Choice Accept; The project's NPV is $1.27 million. Accept; The NPV is $4.89 million. Reject; The NPV is $1.06 million. Reject; The NPV is −$1.15 million. Reject; The NPV is −$1.26 million.
Bob's is a retail chain of specialty hardware stores. The firm has 18,000 shares of stock outstanding that are currently valued at $82 a share and provide a
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Accept; The project's
NPV is $1.27 million. -
Accept; The NPV is $4.89 million.
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Reject; The NPV is $1.06 million.
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Reject; The NPV is −$1.15 million.
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Reject; The NPV is −$1.26 million.
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