1. Dee's Toys is considering a project that will cost $1 million. This project will generate after-tax cash flows of $310,500 per year for 5 years. The firms target D/E ratio is 0.25. The flotation cost for equity is 5%, and the flotation cost for debt is 3%. Which of the following statement is correct, assuming discount rate is 11%?

   I. an increase in D/E ratio will increase the NPV of this project.

   II. the firm should accept this project because it will generate a positive NPV of $99,348.99 after considering flotation cost.

   III. the firm should accept this project because it will generate a positive NPV of $35,017.22

   after considering flotation cost.

   IV. the NPV of this project will increase if the cost increases.

   	A.	II and IV only
   	B.	II only
   	C.	I and II
   	D.	I and III