The FTE Approach Has Been Used by the Firm to Value

question 31

Multiple Choice

The FTE approach has been used by the firm to value their capital budgeting projects. The total investment cost at time 0 is $640,000. The company uses the FTE approach because they maintain a target debt to value ratio over project lives. The company has a debt to equity ratio of .5. The present value of the project including debt financing is $810,994. What is the relevant initial investment cost to use in determining the value of the project?

• A) $640,000
• B) $170,994
• C) $267,628
• D) $437,252

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