The Justus Center Is Analyzing a Project with an Initial

question 102

Multiple Choice

The Justus Center is analyzing a project with an initial cost of $197,000 and cash inflows of $65,000 a year for 4 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 its operations and maintains a debt-equity ratio of.55. The pre-tax cost of debt is 9 %, the cost of equity is 14 %, and the tax rate is 35 %. What is the net present value of this project?

• A) $4,194
• B) $7,807
• C) $9,911
• D) $12,407
• E) $16,873

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Definitions:

Heart Sound

The sounds produced by the closing of heart valves and the flow of blood through the heart, often assessed with a stethoscope.

Patellar Reflex

A reflex action of the leg resulting from a sharp tap on the patellar tendon, used to test the nervous system's response.

Reflex

An involuntary and nearly instantaneous movement in response to a stimulus.

Normal

Conforming to a standard; usual, typical, or expected state or condition.