Your firm is going to seek outside financing to fund the $2.0 million necessary to build an additional production line. You anticipate flotation costs of 16% on any new equity issued and 6% on any new debt issued. Your firms target capital structure is 35% debt and 65% equity and the WACC is 12%. If the production line is expected to yield after-tax cash flows of $800,000 each year for the next 5 years, should you undertake the investment?

ANSWER OPTIONS:

A. Yes, NPV of $598,107

B. No, NPV of ($5,399)