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Orson, Inc. uses one-third common stock and two-thirds debt to finance their operations. The cost of debt is 6 percent (BEFORE TAX) and the cost
Orson, Inc. uses one-third common stock and two-thirds debt to finance their operations. The cost of debt is 6 percent (BEFORE TAX) and the cost of equity (BEFORE TAX) is 9.6 percent. The management of Orson, Inc. is considering a project that will produce a cash inflow of $48,000 in the first year. The cash inflows will then grow at 4 percent per year thereafter. What is the maximum amount the firm can initially invest in this project to avoid a negative net present value for the project? (tax rate=30%) (a)$2,700,000 (b)$2,400,000 (c)$2,100,000 (d)$1,800,000 (e)$1,500,000
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