Dyrdek Enterprises has equity with a market value of $12.1 million and the market value of debt is $4.20 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.7 percent. The new project will cost $2.46 million today and provide annual cash flows of $641,000 for the next 6 years. The company's cost of equity is 11.59 percent and the pretax cost of debt is 5.01 percent. The tax rate is 35 percent. What is the project's NPV?

rev: 10_31_2018_QC_CS-146160

Multiple Choice

$240,662

Correct

$526,537

$205,955

$206,301

$377,911

Explanation WACC = 11.59%($12,100,000/$16,300,000) + 5.01%($4,200,000/$16,300,000)(1 0.35) WACC = 9.44% Project return = 9.44% + 1.7% Project return = 11.14% NPV = $2,460,000 + $641,000(PVIFA11.14%,6) NPV = $240,662

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