DBC Inc. is considering a 7-year project which requires a $45,000 machine. The CCA rate...
80.2K
Verified Solution
Link Copied!
Question
Finance
DBC Inc. is considering a 7-year project which requires a $45,000 machine. The CCA rate is 20% and it will be sold for $8,200 when the project ends. The machine is the only asset in the asset class. The project is expected to generate before tax cash flows of $19,500 per year for 7 years. The firms target debt-to-equity ratio is 0.7. If the project is financed by all equity, the cost of capital would be 14%. The corporate tax rate is 25%. DBC can finance half of the machine cost by borrowing from the provincial government at 3%, which is 2% lower than its cost of debt. However, DBC is required pay 1.6% flotation cost and to repay one third of the loan at the end of year 3 and the remaining balance at year 7. Using the adjusted present value method, calculate the NPV of the project.
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
