Panelli\'s is analyzing a project with an initial cost of $110,000 and cash infl

Question

Panelli's is analyzing a project with an initial cost of $110,000 and cash inflows of $65,000 in year 1 and $74,000 in year 2. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt and common stock to finance its operations and maintains a debt-equity ratio of .45. The aftertax cost of debt is 4.8 percent, the cost of equity is 12.7 percent, and the tax rate is 35 percent. What is the projected net present value of this project? $7,411 $7,809 $8,333 $8,938 $9,840

Explanation / Answer

cost of capital

=(1/1.45)*12.7%+(.45/1.45)*4.8%

=10.2483%

projected net present value

=-110000+65000/(1+10.2483%)^1+74000/(1+10.2483%)^2

=9840

the above is answer

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.