Question
In: Finance
A 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $40,000 cash...
A 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $40,000 cash and borrow $60,000 at 7% with an interest-only loan with a maturity of 5 years and annual interest payments. The equipment will be depreciated straight-line to zero over the 5-year life of the project. There will be a pre-tax salvage value of $10,000. There are no other start-up costs at year 0. During years 1 through 5, the firm will sell 50,000 units of product at $5; variable costs are $3; there are no fixed costs. The cost of unlevered equity is 14%, the tax rate is 40% and the risk-free rate is 2%. What is the NPV of the project using the WACC and APV methodologies?
Calculate the cost of capital of the firm
Select one:
a. 9.64%
b. 10.64%
c. 11.64%
d. 12.64%
Solutions
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jeff jeffy answered 2 years agoRelated Solutions
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