Question
YBZ, Inc., is considering a typical project that costs $43,000 now and will result in net cash inflows $5,800 one year from now, $6,800 two
YBZ, Inc., is considering a typical project that costs $43,000 now and will result in net cash inflows $5,800 one year from now, $6,800 two years from now, and $7,800 three years from now. There are no other cash flows. The riskfree return on YBZ is 6.90%, whereas YBZ pays 7.20% on its debt. YBZ borrows 27.00% of its funds. The marginal tax rate for YBZ is 37.00% and the beta on YBZ's stock is 1.3. Assume the expected return on the market is 13.80%.
a. What is the required rate of return on this project?
b. What is the NPV of this project?
c. Should YBZ invest in this project? (Yes or No)
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