Adequate information: Debt-equity ratio D/E = 0.40 Debt D = 0.40 Equity E = 1 Project cost C P = $60,000,000 After-tax cash flows CF AT = $9,600,000 Equity flotation cost f e = 7% Required return R e = 13% Debt flotation cost f d = 2% Coupon rate CR = 6% Target A/P to LTD AP/LTD = 20% Accounts payable AP = 0.20 Long-term debt LTD = 1 A/P flotation cost f A/P = 0% Tax rate t = 21% To compute: Net present value for the company P. Introduction: The term Net present value (NPV) refers to the difference between the present value of cash inflows and the initial outlay.

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Chapter 13, Problem 22QAP

Summary Introduction

Adequate information:

Debt-equity ratio D/E = 0.40

Debt D = 0.40

Equity E = 1

Project cost CP = $60,000,000

After-tax cash flows CFAT = $9,600,000

Equity flotation cost fe = 7%

Required return Re = 13%

Debt flotation cost fd = 2%

Coupon rate CR = 6%

Target A/P to LTD AP/LTD = 20%

Accounts payable AP = 0.20

Long-term debt LTD = 1

A/P flotation cost fA/P = 0%

Tax rate t = 21%

To compute: Net present value for the company P.

Introduction: The term Net present value (NPV) refers to the difference between the present value of cash inflows and the initial outlay.

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