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Dyrdek Enterprises has equity with a market value of $11.1 million and the market value of...

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Finance

Dyrdek Enterprises has equity with a market value of $11.1million and the market value of debt is $3.70 million. The companyis evaluating a new project that has more risk than the firm. As aresult, the company will apply a risk adjustment factor of 1.9percent. The new project will cost $2.26 million today and provideannual cash flows of $591,000 for the next 6 years. The company'scost of equity is 11.19 percent and the pretax cost of debt is 4.91percent. The tax rate is 40 percent. What is the project's NPV?

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4.4 Ratings (928 Votes)
Step1 Calculation of Weighted Average Cost of Capital to be used to discount the projects annual cash inflows Market Value of Debt 3700000 Market Value of Equity 11100000 Total Market Value 14800000 Weight of Debt    See Answer
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Dyrdek Enterprises has equity with a market value of $11.1million and the market value of debt is $3.70 million. The companyis evaluating a new project that has more risk than the firm. As aresult, the company will apply a risk adjustment factor of 1.9percent. The new project will cost $2.26 million today and provideannual cash flows of $591,000 for the next 6 years. The company'scost of equity is 11.19 percent and the pretax cost of debt is 4.91percent. The tax rate is 40 percent. What is the project's NPV?

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