Consider the following investment:

There are zero taxes.

If debt can be obtained at a cost of 5 percent, determine the net present value ofthe equity cash flows discounted at 15 percent if

a. No debt is used to finance the investment.

b. $500 ofdebt is used to finance the investment.

c. $900 ofdebt is used to finance the investment.
Repeat the NPV calculations using 5 percent as the discount rate.

Transcribed Image Text:

Cash Flows at Time 0 1 2 Internal Rate of Return -$1,000 $576 $576 10%