Question
A project involves an immediate investment of $10,500 for the purchase and installation of equipment. The project will require the immediate purchase of $949 in
A project involves an immediate investment of $10,500 for the purchase and installation of equipment. The project will require the immediate purchase of $949 in inventory and increase in accounts receivable of $716. Accounts payable will increase $595. The project is expected to generate operating cashflows in the amount of $4,990 at the end of each of the next four years. Assume that at the end of the fourth year the related equipment is sold for $2,000 and the changes in working capital are reversed. The firm gets 60% of its capital from common stock and 40% from debt.The debtholder's required rate of return is 7%. The equity holder's required rate of return is 12%. The firm's tax rate is 20%.
What is the firm's weighted average cost of capital?
What is the total cash outflow in year 0 (today)?
What is the total cash inflow at the end of year 4?
What is the net present value of the project?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started