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Watson, Inc., is an all-equity firm. The cost of the company’s equity is currently 13 percent,...

Watson, Inc., is an all-equity firm. The cost of the company’s equity is currently 13 percent, and the risk-free rate is 4.3 percent. The company is currently considering a project that will cost $11.64 million and last six years. The company uses straight-line depreciation. The project will generate revenues minus expenses each year in the amount of $3.28 million. If the company has a tax rate of 35 percent, what is the net present value of the project?

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Expert Solution

NPV of project is calculated in excel and screen shot provided below:

NPV of project is -$402,887.54% and IRR is 11.75%.

Since,NPV of project is a negative value and IRR value is less than cost of equity of company, so project cannot be accepted.

jeff jeffy answered 2 years ago
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