Tony's Pizza Is Considering a New Project That It Considers

question 114

Multiple Choice

Tony's Pizza is considering a new project that it considers to be a little riskier than its current operations. Thus, management has decided to add an additional 2 percent to their company's
Overall cost of capital when evaluating this project. The project has an initial cash outlay of $42,000
And projected cash inflows of $15,000 in year one, $25,000 in year two, and $12,000 in year three.
The firm uses 35 percent debt and 65 percent common stock as their capital structure. The
Company's cost of equity is 13 percent while the after-tax cost of debt for the firm is 6 percent. What
Is the projected net present value of the new project?

• A) -$520.29
• B) -$127.08
• C) $26.18
• D) $413.39
• E) $906.49

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Definitions:

Contractions

In grammar, refers to the shortening of a word or group of words by omission of a sound or letter. In physiology, refers to the tightening and shortening of a muscle.

Premature Babies

Infants born before completing the full term of pregnancy, often facing potential health risks and requiring special medical attention and care to support their development.

Full-Term Babies

Refers to infants born after the completion of 37 weeks of gestation, considered to have reached full developmental maturity before birth.

Adulthood

A life stage characterized by full physical development and maturity, typically involving increased responsibilities and independence.