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Category > Accounting Posted 23 May 2017 My Price 5.00

A firm is considering a $5,000 project that will generate an annual cash flow

A firm is considering a $5,000 project that will generate an annual cash flow of $1,000 for the next 8 years. The firm has the following financial data:

Debt/equity ratio is 50%.

Cost of equity capital is 15%.

Cost of new debt is 9%.

Tax rate is 33%.

Determine the project's net present value (NPV) and whether or not to accept it.

< >> NPV Accept / Do not accept

A) -$33 Do not accept

B) +$33 Accept

C) +$4,968 Accept

 

 

Answers

Alpha Geek
(8)
Status NEW Posted 23 May 2017 05:05 PM My Price 5.00

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file 1495560018-Answer.docx preview (167 words )
A----------- fi-----------rm -----------is -----------con-----------sid-----------eri-----------ng -----------a $-----------5,0-----------00 -----------pro-----------jec-----------t t-----------hat----------- wi-----------ll -----------gen-----------era-----------te -----------an -----------ann-----------ual----------- ca-----------sh -----------flo-----------w o-----------f $-----------1,0-----------00 -----------for----------- th-----------e n-----------ext----------- 8 -----------yea-----------rs.----------- Th-----------e f-----------irm----------- ha-----------s t-----------he -----------fol-----------low-----------ing----------- fi-----------nan-----------cia-----------l d-----------ata-----------: -----------Deb-----------t/e-----------qui-----------ty -----------rat-----------io -----------is -----------50%-----------. -----------Cos-----------t o-----------f e-----------qui-----------ty -----------cap-----------ita-----------l i-----------s 1-----------5%.----------- C-----------ost----------- of----------- ne-----------w d-----------ebt----------- is----------- 9%-----------. -----------Tax----------- ra-----------te -----------is -----------33%-----------. -----------Det-----------erm-----------ine----------- th-----------e p-----------roj-----------ect-----------'s -----------net----------- pr-----------ese-----------nt -----------val-----------ue -----------(NP-----------V) -----------and----------- wh-----------eth-----------er -----------or -----------not----------- to----------- ac-----------cep-----------t i-----------t. ----------- &a-----------mp;-----------lt;----------- &a-----------mp;-----------gt;-----------&am-----------p;g-----------t; -----------NPV----------- Ac-----------cep-----------t /----------- Do----------- no-----------t a-----------cce-----------pt ----------- A)----------- -$-----------33 -----------Do -----------not----------- ac-----------cep-----------t -----------B) -----------+$3-----------3 A-----------cce-----------pt -----------
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