Michael's is analyzing a project with an initial cost of $45,000 and cash inflows of $30,000 a year for two 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 their operations and maintains a debt-equity ratio of .40. The pre-tax cost of debt is 8 percent and the cost of equity is 12 percent. The tax rate is 34 percent. What is the projected net present value of this project? a. 5892.17 b. 6277.30 C. 6451.86 d. 6913.15 e. 7010.27
Michael's is analyzing a project with an initial cost of $45,000 and cash inflows of $30,000 a year for two 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 their operations and maintains a debt-equity ratio of .40. The pre-tax cost of debt is 8 percent and the cost of equity is 12 percent. The tax rate is 34 percent. What is the projected net present value of this project? a. 5892.17 b. 6277.30 C. 6451.86 d. 6913.15 e. 7010.27
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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Transcribed Image Text:Michael's is analyzing a project with an initial cost of $45,000 and cash inflows of $30,000 a year for two 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 their operations and
maintains a debt-equity ratio of .40. The pre-tax cost of debt is 8 percent and the cost of equity is 12 percent. The tax rate is 34 percent. What is the
projected net present value of this project?
а.
5892.17
b.
6277.30
С.
6451.86
d. 6913.15
e. 7010.27
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