Question
MEC is evaluating a proposal for a new alpine snowshoe targeted at mountaineering enthusiasts. The project is expected to last three years and will generate
MEC is evaluating a proposal for a new alpine snowshoe targeted at mountaineering enthusiasts. The project is expected to last three years and will generate annual free cash flows as shown in the table below. MEC targets a debt-to-enterprise value ratio of 50% for all of its projects. The firm has a current cost of debt of 4%, a current cost of equity for 12%, and a marginal tax rate of 30%. Assume that the new project is of average risk to MEC. Using the WACC method, calculate the NPV of the project. Select the best answer.
| Free Cash Flow Projects (in $ millions) | ||||
| Year | 0 | 1 | 2 | 3 |
| Free Cash Flows | -100 | 80 | 110 | 40 |
| I. | $130 million | |
| II. | $102.14 million | |
| III. | $100.13 million | |
| IV. | $538.47 million | |
| V. | $87.59 million |
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Reinventing The CFO How Financial Managers Can Transform Their Roles And Add Greater Value
Authors: Jeremy Hope
1st Edition
1591399459, 978-1591399452
