Question
Dorman Industries has a new project available that requires an initial investment of $5.5 million. The project will provide unlevered cash flows of $775,000 per
Dorman Industries has a new project available that requires an initial investment of $5.5 million. The project will provide unlevered cash flows of $775,000 per year for the next 20 years. The company will finance the project with a debt-to-value ratio of .25. The companys bonds have a YTM of 6.5 percent. The companies with operations comparable to this project have unlevered betas of 1.25, 1.18, 1.40, and 1.35. The risk-free rate is 3.5 percent, and the market risk premium is 6.7 percent. The company has a tax rate of 35 percent.
What is the NPV of this project? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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