Question

Dyrdek Enterprises has equity with a market value of $11.9 million and the market value of debt is $4.10 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.9 percent. The new project will cost $2.42 million today and provide annual cash flows of $631,000 for the next 6 years. The company's cost of equity is 11.51 percent and the pretax cost of debt is 4.99 percent. The tax rate is 39 percent. What is the project's NPV?

$521,207

$177,158

$358,337

$210,704

$209,304

Answer 1

esent Value (NPU) for o Calculate the Net Present Value (NP The project, we need to calculate weight Average cost of capital (WACC) WACC = cost of equity (% of equity) + Cost of debt x 1% of debt) x (1-tax rate) = 11.51%. x 11.9 t. 11.9+4.1 4,99% x 4.1 ×(1-0,39) 11.7+4.) = 0.1151 40.74 +0.0499 80.26 x 0.61 = 0.085 +0.007914 -0.093 = 9.3% Since the project is risky, the project is risky, we will add the risk adjustment factor of 1.gs to WACC to reth the risk. Discount rete = 9.310 +1.9% 11.2% + NPU= -2,420,000+ 63 1000 + 631,000 631,000 + (+ 11.2) (i+11.2)2 (+11. 23 631,000 +631,000 + 631,000 (1 + 1124 (1+11-2) (1+11.2) - - 2,420,000 + 567446 +510293 +4 58897 + 612677 + 371112 + 300121 NPU - 200545$ Scanned with CamScanner