You are evaluating a project that requires an investment of $102 today and garantees a single cash flow of $127 one year from now. You decide to use 100% debt​ financing, that​ is, you will borrow $102. The​ risk-free rate is 5% and the tax rate is 39%. Assume that the investment is fully depreciated at the end of the​ year, so without leverage you would owe taxes on the difference between the project cash flow and the​ investment, that​ is, $25. Calculate the NPV of this investment opportunity using the APV method. ​(Round to two decimal​places.) Using your answer to part ​(1), calculate the WACC of the project. ​(Round to two decimal​places.) Verify that you get the same answer using the WACC method to calculate NPV. ​(Round to two decimal​places.) Finally, show that​ flow-to-equity method also correctly gives the NPV of this investment opportunity. ​(Round to two decimal​places.)

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.