NorthWest Energy Inc., an all-equity firm, is considering a project that requires an initial investment of $550,000. The project will generate perpetual net cash flows of $160,000 per year before taxes. The firms market cost of equity capital (applicable to all-equity firms) is 15% and its market cost of debt capital is 8%. NorthWest is in the 25-percent tax bracket.

- Assume the firm will finance the project using equity only. What is the expected NPV of this project? Should the firm undertake the project?

- Assume the firm has instead decided to finance the project using $436,695 in equity and $113,305 in debt.

What is the expected NPV of this project? Should the firm undertake the project?

Under the debt and equity financing arrangement specified in b), what is the firms weighted average cost of capital (WACC)?