A Firm Is Considering a Project That Will Generate Perpetual

question 79

Multiple Choice

A firm is considering a project that will generate perpetual cash flows of $50,000 per year beginning next year.The project has the same risk as the firm's overall operations.If the firm's WACC is 12.0%,and its debt-to-equity ratio is 1.33,what is the most it could pay for the project and still earn its required rate of return?

• A) $313,283
• B) $375,094
• C) $416,667
• D) $554,167

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Definitions:

Owner's Equity

Owner's equity is the residual interest in the assets of the entity after deducting liabilities, representing the owner's claim on the business assets.

Income Statement

A report detailing a company's income and expenditures within a certain time frame, leading to a profit or deficit.

Balance Sheet

A report on finance that outlines a firm's assets, debts, and owners' equity at a certain time, offering a framework for determining returns and analyzing its capital composition.

Accounts Payable

The amount a company owes to suppliers for items or services purchased on credit.