The firm Ever Growing is considering a project with the following characteristics.

Sales will be $100 MM for sure in the first year with the long-term

growth rate is 5%.

Gross Profit Margin (Gross Profit over Sales) will be 25%.

All cash flows defined here (except for Year 1) are deterministic and will go on indefinitely.

The Corporate Tax Rate is 40%.

The project is funded by Riskless Debt, Preferred Stocks with beta 0.2,

and Common Stocks with beta 1.3 with equal weight.

The cash flow stream that goes from time 0 on indefinitely is similar in nature to a long-term treasury bond.

A risk premium of 8.6 and a treasury rate of 5.

Interest payment is NOT tax deductible.

Ignoring depreciation.

What is the investment cost to make the project break-even?

A. 348.8

B. 416.7

C. 581.4

D. 694.4

Answer: A