Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debtequity ratio of

Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debtequity ratio of .45, but the industry target debtequity ratio is .40. The industry average beta is 1.30. The market risk premium is 7 percent, and the risk-free rate is 5 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 34 percent. The project requires an initial outlay of $688,000 and is expected to result in a $108,000 cash inflow at the end of the first year. The project will be financed at the companys target debtequity ratio. Annual cash flows from the project will grow at a constant rate of 5 percent until the end of the fifth year and remain constant forever thereafter.

Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV $

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

Recommended Textbook for

Essential Mathematics For Economic Analysis

Authors: Knut Sydsaeter, Peter Hammond

3rd Edition

0273713248, 9780273713241

More Books

Students also viewed these Finance questions

Question

Explain the importance of Human Resource Management

Answered: 1 week ago