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DigiFlix is a streaming service for home movies. It plans to issue debt to finance an upgrade to its IT infrastructure. The project will cost $30 million, and debt issuance costs are 3% of the amount raised. The firm estimates that the upgrade will generate perpetual after-tax cash flows of $2 million/year beginning one year from today. If the appropriate discount rate is 5%, what is the NPV of this project?

DigiFlix is a streaming service for home movies. It plans to issue debt to finance an upgrade to its IT infrastructure. The project will cost $30 million, and debt issuance costs are 3% of the amount raised. The firm estimates that the upgrade will generate perpetual after-tax cash flows of $2 million/year beginning one year from today. If the appropriate discount rate is 5%, what is the NPV of this project?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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DigiFlix is a streaming service for home movies. It plans to issue debt to finance an upgrade to its IT infrastructure. The project will cost $30 million, and debt issuance costs are 3% of the amount raised. The firm estimates that the upgrade will generate perpetual after-tax cash flows of $2 million/year beginning one year from today. If the appropriate discount rate is 5%, what is the NPV of this project?
Transcribed Image Text:DigiFlix is a streaming service for home movies. It plans to issue debt to finance an upgrade to its IT infrastructure. The project will cost $30 million, and debt issuance costs are 3% of the amount raised. The firm estimates that the upgrade will generate perpetual after-tax cash flows of $2 million/year beginning one year from today. If the appropriate discount rate is 5%, what is the NPV of this project?
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