The Justus Center Is Analyzing a Project with an Initial

question 47

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 percent, the cost of equity is 14
Percent, and the tax rate is 35 percent. 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:

Demanding Stakeholders

Individuals or groups with an interest in a company's performance who have high expectations and requirements that can influence management decisions.

Urgency Attribute

A characteristic or quality related to the need for quick or immediate action.

Dangerous Stakeholders

Individuals or groups that can pose a risk to a project or business due to their influence or actions.

Power and Urgency

The combination of having the influence to drive actions and the necessity of prompt action due to compelling circumstances.