Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Abdel's Boutique is looking at a new project they consider to be a little riskier than their current operations. Thus, management has decided to add

Abdel's Boutique is looking at a new project they consider to be a little riskier than their current operations. Thus, management has decided to add an additional 3.5 percent to their company's overall cost of capital when evaluating this project. The project has an initial cash outlay of $30,000 and projected cash inflows of $12,000 in year one, $20,000 in year two, and $8,000 in year three. The firm uses 40 percent debt and 60 percent common stock as their capital structure. The company's cost of equity is 14 percent while the aftertax cost of debt for the firm is 7 percent. What is the projected net present value of the new project?
Group of answer choices
$1,467.38
$3,904.59
$965.67
$2,783.50
$2,360.46

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions