Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please answer! DIY Inc. has is evaluating a 12 -year project. The project requires a machine that costs $125,000 and has a CCA rate of
Please answer!
DIY Inc. has is evaluating a 12 -year project. The project requires a machine that costs $125,000 and has a CCA rate of 25%. The machine is the only asset in the asset class and its salvage value is $8,000 at year 12. The project generates $42,500 annual before-tax cash flow for 12 years. The cost of debt is 6% and the tax rate is 30%. a) Assume DIY's WACC is 10%, calculate the NPV using the WACC method. b) Assume DIY borrows $35,000 to finance the project and the cost of equity is 12.5%, calculate the NPV using the FTE method. c) Assume the flotation cost is 3% of the amount borrowed and DIY needs $35,000 (net of flotation cost) to finance the project. If the cost of unlevered equity is 10.5%, calculate the NPV using the APV methodStep 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