Dorman Industries has a new project available that requires an initial investment of $6.5 million. The...

50.1K

Verified Solution

Question

Finance

Dorman Industries has a new project available that requires aninitial investment of $6.5 million. The project will provideunlevered cash flows of $875,000 per year for the next 20 years.The company will finance the project with a debt-to-value ratio of.4. The company’s bonds have a YTM of 5.9 percent. The companieswith operations comparable to this project have unlevered betas of1.35, 1.28, 1.50, and 1.45. The risk-free rate is 2.9 percent, andthe market risk premium is 6.1 percent. The company has a tax rateof 34 percent.
What is the NPV of this project?

Answer & Explanation Solved by verified expert

3.8 Ratings (758 Votes)

See Answer

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: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Dorman Industries has a new project available that requires aninitial investment of $6.5 million. The project will provideunlevered cash flows of $875,000 per year for the next 20 years.The company will finance the project with a debt-to-value ratio of.4. The company’s bonds have a YTM of 5.9 percent. The companieswith operations comparable to this project have unlevered betas of1.35, 1.28, 1.50, and 1.45. The risk-free rate is 2.9 percent, andthe market risk premium is 6.1 percent. The company has a tax rateof 34 percent.What is the NPV of this project?