Question
Suppose that a local restaurant is trying to evaluate the value of adding a food truck to their business. The restaurant is financed with a
Suppose that a local restaurant is trying to evaluate the value of adding a food truck to their business. The restaurant is financed with a bank loan (debt) at 9.00% per year, and has owners (equity) who want a 16.00% annual return on their investment in the business. The owners will raise money for the food truck with a ratio of 69.00% debt and 31.00% equity. The tax rate facing the firm is 30.00%. The owners have estimated that the food truck will create an annual after-tax cash flow of $75,000.00 for the business. The cost of the food truck will cost $201,712.00 today. The project will be evaluated over a 5-year period.
What is the NPV of this project? Please also show me how you calculated the WACC.
Step 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