Your firm has an average-risk project under consideration. You choose to fund the project in the...

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Finance

Your firm has an average-risk project under consideration. Youchoose to fund the project in the same manner as the firm’sexisting capital structure. If the cost of debt is 9.50%, the costof preferred stock is 10.00%, the cost of common stock is 12.00%,and the WACC adjusted for taxes is 11.50%, what is the project’sNPV given the expected cash flows listed here?
Category
T0 T1 T2 T3
Investment
?$800,000
Net working capital ?$ 50,000
$ 50,000
Operating cash flow $350,000 $350,000 $350,000
Salvage
$ 20,000
Total incremental cash flow ?$850,000 $350,000 $350,000 $420,000
a. $1,150,904
b. $898,415
c. $300,904
d. $48,415

PLEASE SHOW WORK

Answer & Explanation Solved by verified expert

3.9 Ratings (726 Votes)

	Category	T0	T1	T2	T3
	Investment	-800000.00
	Net working capital	-50000.00			$50,000
	Operating cash flow		$350,000	$350,000	$350,000
	Salvage				$20,000
A	Total incremental cash flow	-850000.00	$350,000	$350,000	$420,000
B	PVIF @ 11.5%	1.0000	0.8969	0.8044	0.7214
C=A*B	Present value	(850,000)	313,901	281,526	302,987	48,415


	therefore NPV =	48,415

	Ans = Option d	48415

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Transcribed Image Text

Your firm has an average-risk project under consideration. Youchoose to fund the project in the same manner as the firm’sexisting capital structure. If the cost of debt is 9.50%, the costof preferred stock is 10.00%, the cost of common stock is 12.00%,and the WACC adjusted for taxes is 11.50%, what is the project’sNPV given the expected cash flows listed here?CategoryT0T1T2T3Investment?$800,000Net working capital?$ 50,000$ 50,000Operating cash flow$350,000$350,000$350,000Salvage$ 20,000Total incremental cash flow?$850,000$350,000$350,000$420,000a. $1,150,904b. $898,415c. $300,904d. $48,415PLEASE SHOW WORK

Category	T0	T1	T2	T3
Investment	?$800,000
Net working capital	?$ 50,000			$ 50,000
Operating cash flow		$350,000	$350,000	$350,000
Salvage				$ 20,000
Total incremental cash flow	?$850,000	$350,000	$350,000	$420,000