You are considering an investment in a project that requires an initial outlay of $350,000 and...
You are considering an investment in a project that requires an initial outlay of $350,000 and will produce after-tax cash flows of $50,000 per year for the next 10 years. Your firm uses 40 percent debt and 60 percent equity in its financing. The after-tax costs of debt and equity are 6% and 11%, respectively.
| a. | What is the firm’s WACC? |
| b. | What is the project NPV? Should the project be accepted? |
Homework Answers
WACC = 0.40(0.06) + 0.60(0.11)
WACC = 9.00%
NPV = $-29,117.11
As NPV is negative project should not be accepted.
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