A Firm Has a Target Debt-Equity Ratio Of

question 41

Multiple Choice

A firm has a target debt-equity ratio of.37. The cost of debt is 9% and the cost of equity is 15%. The company has a 34% tax rate. A project has an initial cost of $70,000 and an annual after-tax cash flow of $21,000 for six years. There is no salvage value or net working capital requirement. What is the net present value of the project using the WACC?

• A) $14,092
• B) $14,899
• C) $15,011
• D) $15,513
• E) $15,942

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Definitions:

West Segment

A geographical or operational division of a company that focuses on business activities in the western region or sector.

Break-Even Sales

The amount of revenue from sales that equals the total of the fixed and variable costs, resulting in zero profit.

Fixed Expenses

Costs that do not change with the level of production or sales activities, such as rent, salaries, and insurance.

Break-Even Sales

The amount of revenue from sales that is exactly equal to the sum of fixed and variable costs, resulting in no profit and no loss.