Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

DeHass, Inc is looking at a new investment opportunity that will have an up-front cost of $1,050,000. The company projects that the life of this

image text in transcribed
DeHass, Inc is looking at a new investment opportunity that will have an up-front cost of $1,050,000. The company projects that the life of this opportunity will be 6 years. This opportunity will have an annual cost of $30,000 (cash outflow) for upkeep of equipment. This $30,000 cost occurs at the end of each year: DeHass; inc expects to generate $300,000 cash infiow at the end of the first year from taking on this potential. opportunity. Cash inflows at the end of the second year are expected to be 110% of year one cash inftows. Year 3 cash infiows are expected to be 6% greater than Year 2 cash inflows. Each year after Year 3 , the annual increase in cash inflows will be 1% less than it was the year before. So, that means that the Year 4 cash infiows will be 5% greater than the year three cash inflows. You will need ro calculate net cash fiow amounts for each period in order to answer parts B-D below. The net cash flow for a period is equal to the cash inflows for that period less the cash outflows for that-period. The company plans on financing this opportunity 40%6 with debt and 60% with common stock. The before-tax cost of the debt is 5.75% and the cost of the common stock is 16.5%. The company's marginal tax rate is 35%. (A) What is the weighted average cost of capital (WACC)? (B) What is the internal Rate of Return (IRB) of this new opportunity? (C) What is the Net Present Value (NPV) of this new opportunity

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

Quantitative Analysis for Management

Authors: Barry Render, Ralph M. Stair, Michael E. Hanna, Trevor S. Ha

12th edition

133507335, 978-0133507331

More Books

Students also viewed these Finance questions

Question

LO3.2 Describe demand and explain how it can change.

Answered: 1 week ago