A Firm Is Considering Investing in a New Project with an Upfront

question 37

Multiple Choice

A firm is considering investing in a new project with an upfront cost of $400 million. The project will generate an incremental free cash flow of $50 million in the first year and this cashflow is expected to grow at an annual rate of 4% forever. If the firm's WACC is 13%, what is the value of this project?

• A) $177.8 million
• B) $577.8 million
• C) $155.6 million
• D) $555.6 million

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Definitions:

Net New Jobs

The total number of jobs created in an economy over a specific time frame, after accounting for job losses, showcasing the employment growth rate.

Industry Employment

The aggregate number of jobs or positions filled or available in a specific industry or sector of the economy.

Intellectual Capital

The valuable skills and knowledge that employees of a business possess.

Process Innovation

The implementation of new or significantly improved production or delivery methods in a business.