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  3. consider a project of abc ltd with the following c

Consider a project of ABC Ltd with the following characteristics: Cash inflows: $500,000 per year for the...

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Finance

Consider a project of ABC Ltd with the followingcharacteristics:

Cash inflows: $500,000 per year for the indefinite future; Cashcosts: 72% of sales;
Initial investment: $475,000;
Corporate tax: 34%;

The cost of capital for a project of an all-equity firm:20%.

  1. a) Will you accept this project?

  2. b) If ABC Ltd finances the project with $150,000 in debt, willyou accept this project?

Answer & Explanation Solved by verified expert
3.7 Ratings (539 Votes)
Initial investment 475000Annual Cash Revenue 500000Annual Cash Cost 72 of 500000 360000thusAnnual Cash Inflow net before tax 140000500000360000Project period indefiniteTax ratet 34aCost of Capital 20We can make our acceptance decision onthe basis    See Answer
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