Bertelli's Is Analyzing a Project with an Initial Cost of $55,000

question 47

Multiple Choice

Bertelli's is analyzing a project with an initial cost of $55,000 and cash inflows of $33,000 a year for two years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt and common stock to finance their operations and maintains a debt-equity ratio of.35. The after-tax cost of debt is 6 % and the cost of equity is 11 %. The tax rate is 34 %. What is the projected net present value of this project?

• A) $2,501
• B) $2,854
• C) $2,913
• D) $3,011
• E) $3,418

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Definitions:

Invoice Price

The price listed on the invoice, representing the amount charged to the buyer by the seller for goods or services provided.

Settlement Date

The day on which a trade is finalized, and the buyer must make payment and the seller deliver the asset.

Foreign Exchange Gain

Profit arising from the appreciation of a foreign currency relative to the functional currency in foreign currency transactions.

Settlement Date

The date on which a trade or financial transaction must be completed, with the transfer of the asset and payment.