Question
A candy factory is building an extension to its taffy puller. This will require spending $18 million today. This project will then generate $2 million
A candy factory is building an extension to its taffy puller. This will require spending $18 million today. This project will then generate $2 million in incremental free cash flow each year for the next 20 years (from t=1 to t=20). The firm is financed half with equity and half with debt (it has essentially no cash). The firm's equity beta is 0.8, debt yield to maturity is 4.0%, and tax rate is 20%. The expected return on the S&P500 Index is expected to be 7.0% each year and the relevant risk-free rate is 2.0%. What is the NPV of this project (in millions)? Group of answer choices
-10.8 -5.6 -1.3 0 4.5 7.8
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