The Dollar company is interested in a new potential project. The initial cost for the project is $150,000. The company has decided to obtain 40% funds through equity, 10% of funds can be taken out from companys reserves and remaining 50% through a long-term loan. Cost of raising funds through equity is 10%, whereas cost of raising funds through debt is 8%. Tax rate is 20%. If company invests in this project, it can receive $ 40,000 each year for the next 5 years. As a manager you have been given responsibility to evaluate feasibility of the project. Use NPV, PBP and IRR to help company reach decision.

Introduction to Business Finance