Question
Calculate the NPV of a project given the following - and should the company accept or reject the project: It is estimated that the project
Calculate the NPV of a project given the following - and should the company accept or reject the project:
It is estimated that the project will deliver $25,000 operating profit each year for 12 years.
The firm can borrow as much as they like from their bank (which is being bailed out by the Federal Government - bless 'em) at 10%.
They have no retained earnings available - they are paying all their net profit out in dividends at $2.00 per share (I never said this was a well run company)
They can sell stock at $20.00 with a flotation cost of $4.00 per share.The stock's earnings/dividends are growing at 6%
They are in a 40% marginal tax bracket.
The Board of Directors has determined a target capital structure of 60% debt and 40% common equity. - they have no preferred stock.
The machine they are considering costs$160,000.
And for the last time, be sure to show all work and formulas!
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