What is the NPV for this project and should the company accept?

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
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A corporation has $500,000 in bonds outstanding with a 5% annual coupon rate, 15 years to maturity, a $1,000 face value, and a $890 market price. The company’s 5,000 shares of common stock sell for $20 per share and have a beta of 2.5. The risk free rate is 4%, and the market return is 12%. The company has a 35% tax rate. They are considering a project which will provide annual cash flows of $2,500 per year for 10 years, costs $20,000 and requires working capital of $3,000. What is the NPV for this project and should the company accept?

 

 

Select one:

a. NPV is 0 and the company should not accept

b. NPV is 4200 and the company should accept

c. NPV is -4200 and the company should not accept

d. NPV is -8200 and the company should not accept

e. NPV is -7200 and the company should not accept

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