Caterpillar (CAT) has debt valued at $40 billion on its balance sheet, while the market value of its common stock is roughly $20 billion. The yield to maturity on the debt is 5.50%, the cost of equity for the firm is 9%, and the tax rate for the firm is 35%. Caterpillar (CAT) has a project with the following cash flows (in millions): YEAR 0 Cash flow -$40 1 $12 2 $12 3 $12 Given this information, what is the NPV for the proposed project? $2.18 million $0.23 million $1.22 million $3.41 million -$1.29 million 4 $12
Caterpillar (CAT) has debt valued at $40 billion on its balance sheet, while the market value of its common stock is roughly $20 billion. The yield to maturity on the debt is 5.50%, the cost of equity for the firm is 9%, and the tax rate for the firm is 35%. Caterpillar (CAT) has a project with the following cash flows (in millions): YEAR 0 Cash flow -$40 1 $12 2 $12 3 $12 Given this information, what is the NPV for the proposed project? $2.18 million $0.23 million $1.22 million $3.41 million -$1.29 million 4 $12
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Caterpillar (CAT) has debt valued at $40 billion on its balance sheet, while the market value of its common
stock is roughly $20 billion. The yield to maturity on the debt is 5.50%, the cost of equity for the firm is 9%,
and the tax rate for the firm is 35%.
Caterpillar (CAT) has a project with the following cash flows (in millions):
YEAR
0
Cash flow
-$40
1
$12
2
$12
3
$12
Given this information, what is the NPV for the proposed project?
$2.18 million
$0.23 million
$1.22 million
$3.41 million
-$1.29 million
4
$12
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