Carson Electronics Uses 70 Percent Common Stock and 30 Percent

question 10

Multiple Choice

Carson Electronics uses 70 percent common stock and 30 percent debt to finance its operations.The aftertax cost of debt is 5.4 percent and the cost of equity is 15.4 percent.Management is considering a project that will produce a cash inflow of $36,000 in the first year.The cash inflows will then grow at 3 percent per year forever.What is the maximum amount the firm can initially invest in this project to avoid a negative net present value for the project?

• A)$299,032
• B)$382,979
• C)$411,406
• D)$434,086
• E)$441,414

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Definitions:

Direct Labor-hour

A measure of the work input in terms of hours spent by workers directly involved in the manufacturing process.

Cash Disbursements

The outflow of cash for expenses, including paying bills, employees, and suppliers, among others.

Direct Labor-hours

The sum of working hours of employees directly contributing to the production activities.

Cash Disbursements

Payments made in cash by a business, including operating expenses, purchasing of assets, and other financial activities.