RiverRocks realizes that it will have to raise the financing for the acquisition of Raft Adventures by issuing new debt and equity. The acquisition project has a net present value of

$36.65

million. The firm estimates that the direct issuing costs will come to

$7.35

million. How should it account for these costs in evaluating theproject? Should RiverRocks proceed with the project?

How should it account for these costs in evaluating the project?(Select the best choice below.)

A.

The direct issuing costs should not be included as a direct cost of the acquisition because it is a sunk cost.

B.

The direct issuing costs should be included as a direct cost of the acquisition, i.e.,

NPV equals $ 36.65 million minus $ 7.35 million equals $ 29.30 millionNPV=$36.65 million$7.35 million=$29.30 million

C.

The direct issuing costs should be included as a direct cost and should be amortized over the life of the project.

D.

The direct issuing costs should be included as a direct cost of the acquisition, i.e.,

NPV equals $ 36.65 million plus $ 7.35 million equals $ 44.00 millionNPV=$36.65 million+$7.35 million=$44.00 million

Should RiverRocks go ahead with the project?(Select from the drop-down menu.)

RiverRocks

should not

should

go ahead with the project.