Top-Down, Inc

question 326

Multiple Choice

Top-Down, Inc. finances its operations using $1.50 of debt for every $2 of common stock. The pre- tax cost of debt is 7.5 percent, the cost of equity is 11 percent, and the tax rate is 34 percent.
Currently, the firm is considering a small project that it considers to be equally as risky as the overall
firm) The project has an initial cash outlay of $18,500 and is expected to have a single cash inflow
Of $25,000 at the end of year two. What is the net present value of this project?

• A) $2,107
• B) $2,350
• C) $2,773
• D) $2,807
• E) $2,835

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Definitions:

Female-Headed

Refers to households led by a female, commonly used in statistics and studies to analyze economic, social, or demographic impacts.

Implicit Marginal Tax Rate

The effective rate at which an additional dollar of income is taxed, taking into account both explicit taxes and the phase-out of benefits or allowances.

Government Transfers

Payments by the government to individuals or entities without the expectation of direct repayment or work in return, often taking the form of welfare, subsidies, or grants.

Tax Rate

The percentage at which an individual or corporation is taxed by the government.