A Firm Is Considering a Project That Will Generate Perpetual

question 110

Multiple Choice

A firm is considering a project that will generate perpetual cash flows of $15,000 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity costs 14% and debt costs 4% on an after-tax basis. The firm's D/E ratio is 0.8. What is the most the firm can pay for the project and still earn its required return?

• A) $138,000
• B) $157,000
• C) $164,000
• D) $182,000
• E) $199,000

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