Correct answer is 2,867,569.37

Exercise 4 At the moment Sarno Inc. keeps a constant debt-to-equity ratio equal to 0.4, the wacc is 11.00% and its cost of debt is 3.00%. The company's debt bears no systematic risk. Sarno will raise $40,000,000 to acquire the assets for a new, 8 year-long, project. The assets of this new project are as risky as the other assets of the firm. This new venture will be separated from the rest of the company's operations. The new project will have a constant amount of debt equal to 60% of the initial investment, the remaining necessary funds will be raised as equity. The underwriting bank charges a 7.00% fee for equity issuance and a 0% fee for debt issuance. The cost of debt for the new project is the same as the cost of the other debt issued by the company. The assets of the project will be depreciated straight line through the life of the project, the depreciation tax benefits have a beta of 0.25. The corporate tax rate is 30% and the expected market return is 6.50%. Assuming that the annual expected net income from the project is $2,350,667, what is the NPV of the project? [20 Points] Exercise 4 At the moment Sarno Inc. keeps a constant debt-to-equity ratio equal to 0.4, the wacc is 11.00% and its cost of debt is 3.00%. The company's debt bears no systematic risk. Sarno will raise $40,000,000 to acquire the assets for a new, 8 year-long, project. The assets of this new project are as risky as the other assets of the firm. This new venture will be separated from the rest of the company's operations. The new project will have a constant amount of debt equal to 60% of the initial investment, the remaining necessary funds will be raised as equity. The underwriting bank charges a 7.00% fee for equity issuance and a 0% fee for debt issuance. The cost of debt for the new project is the same as the cost of the other debt issued by the company. The assets of the project will be depreciated straight line through the life of the project, the depreciation tax benefits have a beta of 0.25. The corporate tax rate is 30% and the expected market return is 6.50%. Assuming that the annual expected net income from the project is $2,350,667, what is the NPV of the project? [20 Points]