Question
Silver Sun Media is evaluating a 1-year project that would involve an initial investment in equipment of 33,200 dollars and an expected cash flow of
Silver Sun Media is evaluating a 1-year project that would involve an initial investment in equipment of 33,200 dollars and an expected cash flow of 34,600 dollars in 1 year. The project has a cost of capital of 3.34 percent and an internal rate of return of 4.22 percent. If Silver Sun Media were to use 33,200 dollars in cash from its bank account to purchase the equipment, the net present value of the project would be 282 dollars. However, Silver Sun Media has no cash in its bank account, so using money from its account is not possible. Therefore, the firm would need to borrow money to raise the 33,200 dollars. If Silver Sun Media were to borrow money to raise the 33,200 dollars, the interest rate on the loan would be 1.72 percent. Silver Sun Media would receive 33,200 dollars from the bank at the start of the project and would pay 33,771 dollars to the bank in 1 year. What is the NPV of the project if Silver Sun Media borrows 33,200 to pay for the project?
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