Consider a project of the Charlie Company, the timing and size of the incremental after-tax cash flows (for an all-equity firm) are shown below in millions:

CF0=-$990; C01=$125, C02=$250; C03=$375; C04=$500

The firm's tax rate is 21 percent; the firm's bonds trade with a yield to maturity of 8 percent; the current and target debt-equity ratio is 2; if the firm were financed entirely with equity, the required return would be 10 percent. Using the weighted average cost of capital methodology, what is the NPV? Hint: use r_L = r_u + (D/E)(r_u - r_d)(1-t), and then find WACC.

• A.

  7.5674

• B.

  10.6854

• C.

  -7.5674

• D.

  -10.6854