Question
In: Finance
A company has a proposed 2-year project with the cash flows shown below and would like...
A company has a proposed 2-year project with the cash flows
shown below and would like to calculate the NPV of this project so
that they can decide whether to pursue the project or not. The
company has a target capital structure of 60% equity and 40% debt.
The beta for this firms stock is 1.6, the risk-free rate is 4.9,
and the expected market risk premium is 6.4%. The bonds for this
company pay interest semiannually and have a coupon interest rate
of 9%, 26 years to maturity, a face value of $1,000, and a current
price of 937.84. If the corporate tax rate is 40%, what is the NPV
of the proposed project for this firm? (Answer to the nearest
dollar, but do not use a dollar sign).
|
Years |
Cash Flows |
|
0 |
-2,000 |
|
1 |
2,000 |
|
2 |
3,000 |
Solutions
Expert Solution
WACC IS ROUNDED TO 2 DECIMALS AND THEN USED IN
CALCULATIN NPV
jeff jeffy answered 6 months agoRelated Solutions
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The beta for this firms stock is 1.6, the risk-free rate is 4.5,
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A company has a proposed 2-year project with the cash flows
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company has a target capital structure of 60% equity and 40% debt.
The beta for this firms stock is 0.8, the risk-free rate is 4.8,
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acceptable payback period of 3 years.
0
1
2
3
4
5
($400,000)
$150,000
$150,000
$200,000
$100,000
$100,000
a. Calculate the NPV of the project. Based on the NPV analysis,
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Which project is most sensitive to the change of the cost of
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End of Year
Net Cash Flow From Project
X
Y
Z
1
$110
0
0
2
0
$121
0
3
0
0
$133.1
X
Y
Z
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