Worldwide trousers is considering an expansion of their existing business. The incremental after-tax cash flows to...

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Finance

Worldwide trousers is considering an expansion of their existingbusiness. The incremental after-tax cash flows to the projectare:
Year 0: $-25,500
Year 1: $5,500
Year 2: $7,500
Year 3: $8,500
Year 4: $10,000
The unlettered cost of equity is 10%. The corporate tax rate is40%.
A. Calculate the NPV of the project if it is all equityfinanced.
B. Worldwide plans to issue a 4-year loan for $12,000 at aninterest rate of 8% to partially finance the project. All principalwill be repaid in one lump-sum at the end of the fourth year.Calculate the adjusted present value of the investment project.

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4.2 Ratings (900 Votes)

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Worldwide trousers is considering an expansion of their existingbusiness. The incremental after-tax cash flows to the projectare:Year 0: $-25,500Year 1: $5,500Year 2: $7,500Year 3: $8,500Year 4: $10,000The unlettered cost of equity is 10%. The corporate tax rate is40%.A. Calculate the NPV of the project if it is all equityfinanced.B. Worldwide plans to issue a 4-year loan for $12,000 at aninterest rate of 8% to partially finance the project. All principalwill be repaid in one lump-sum at the end of the fourth year.Calculate the adjusted present value of the investment project.