The Bakery Is Considering a New Project It Considers to Be

question 89

Multiple Choice

The Bakery is considering a new project it considers to be a little riskier than its current operations. Thus, management has decided to add an additional 1.2 percent to the company's overall cost of capital when evaluating this project. The project has an initial cash outlay of $63,000 and projected cash inflows of $19,000 in Year 1, $34,000 in Year 2, and $28,000 in Year 3. The firm uses 33 percent debt and 67 percent common stock as its capital structure. The company's cost of equity is 13.8 percent while the aftertax cost of debt for the firm is 5.7 percent. What is the projected net present value of the new project?

• A) −$409
• B) $618
• C) −$308
• D) $427
• E) $573

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Definitions:

Avoidant

A term often used in psychology to describe an individual who exhibits a preference for minimally emotional or detached relationships, typically as a defense mechanism.

Secure

In psychology, a term describing an attachment style where individuals display confidence in relationships, feeling comfortable with intimacy and independence.

Disorganized

Lacking structure or order; not systematically planned or coordinated, which can lead to confusion or chaos.

Ambivalent

Ambivalent describes a state of having mixed feelings or contradictory attitudes towards someone or something.