A company has a proposed 2-year project with the cash flows shown below and would like...

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Finance

A company has a proposed 2-year project with the cash flowsshown below and would like to calculate the NPV of this project sothat they can decide whether to pursue the project or not. Thecompany has a target capital structure of 60% equity and 40% debt.The beta for this firms stock is 1.2, the risk-free rate is 4.6,and the expected market risk premium is 6.1%. The bonds for thiscompany pay interest semiannually and have a coupon interest rateof 6%, 13 years to maturity, a face value of $1,000, and a currentprice of 922.67. If the corporate tax rate is 36%, what is the NPVof the proposed project for this firm? (Answer to the nearestdollar, but do not use a dollar sign).

Years
Cash Flows
0
-5,000
1
2,000
2
3,000

Answer & Explanation Solved by verified expert

4.5 Ratings (622 Votes)

First we need to calculate WACCTarget CapitalstructureEquity 60 equity andDebt 40Cost ofequityCost of equity Risk See Answer

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A company has a proposed 2-year project with the cash flowsshown below and would like to calculate the NPV of this project sothat they can decide whether to pursue the project or not. Thecompany has a target capital structure of 60% equity and 40% debt.The beta for this firms stock is 1.2, the risk-free rate is 4.6,and the expected market risk premium is 6.1%. The bonds for thiscompany pay interest semiannually and have a coupon interest rateof 6%, 13 years to maturity, a face value of $1,000, and a currentprice of 922.67. If the corporate tax rate is 36%, what is the NPVof the proposed project for this firm? (Answer to the nearestdollar, but do not use a dollar sign). YearsCash Flows0-5,00012,00023,000