The Also Horns Corp. is planning on introducing a new line of saxophones. They expect sales to be $400,000 with total fixed and variable costs representing 70% of sales. The discounted rate of the unlevered equity is 17%, but the firm plans to raise $144,385 of the initial $450,000 investment as 9% perpetual debt. The corporate tax rate is 40% and the target debt to asset (or value) ratio is 0.3.

In addition to the information above, suppose the APV approach is used to evaluate the project for the next 4 questions.

3. How much is the unlevered cash flow?

$72,000

$84,000

$100,000

$120,000

$144,000

1 points

QUESTION 77

1. What is the NPV of the project to an all-equity firm?

$-34,451

$-26,471

$-12,417

$25,376

$34,451

1 points

QUESTION 78

1. What is the NPV of the financing side effects (NPVF)?

$44,334

$57,754

$62,250

$65,000

$75,250

1 points

QUESTION 79

1. What is the APV of the project?

$12,341

$27,799

$31,283

$35,779

$45,337