Your firm has an average-risk project under consideration. You choose to fund th

Question

Your firm has an average-risk project under consideration. You choose to fund the project in the same manner as the firm's existing capital structure. If the cost of debt is 12.50%, the cost of preferred stock is 12.00%, the cost of common stock is 16.00%, and the WACC adjusted for taxes is 15.00%, what is the NPV of the project, given the expected cash flows listed here?

Category T0 T1 T2 T3 Investment -$1,000,000


NWC -$250,000

$250,000 Operating Cash Flow
$50,000 $550,000 $750,000 Salvage


  $40,000 Total Incremental Cash Flow -$1,250,000 $50,000 $550,000 $1,040,000

Explanation / Answer

NPV = -1250000 + 50000/1.15 + 550000/1.15^2 + 1040000/1.15^3 =-106825.84

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