10.6 Net present value and cost of capital. HT Inc. is considering a new process to speed production and reduce costs. The project will last 7 years and have an initial investment of

$1,400,000. The after-tax cash flows are estimated at $315,000 per year. The firm has a targeted debt-to-equity ratio of 1.5.

Its pretax cost of equity is 14 percent, and its pretax cost of debt is 8 percent. The tax rate is 40 percent. What is the NPV of this project?

Financial Source Cost Debt Twelve-year bond, 6.75% annual coupon, current price of $960.81 Preferred stock Dividend $5.50, current price of $63.75 Common stock Beta of 1.45, excess market return of 5.63%, risk-free rate of 6.05%