A Firm Is Considering Investing in a New Project with an Upfront

question 85

Multiple Choice

A firm is considering investing in a new project with an upfront cost of $400 million.The project will generate an incremental free cash flow of $50 million in the first year and this cash flow is expected to grow at an annual rate of 4% forever.If the firm's WACC is 13%,what is the value of this project?

• A)$155.6 million
• B)$555.6 million
• C)$577.8 million
• D)$177.8 million
• E)$181.4 million

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Definitions:

White Pulp

Spherical areas within the spleen composed mainly of immune cells and involved in producing an immune response.

Follicle

A small secretory cavity or gland, though often referring to the structure in the ovary that releases an egg.

Lymphatic Capillary

Extremely fine vessels that collect lymph fluid from tissues, initiating its return to the blood vascular system.

Interstitial Fluid

The fluid that fills the spaces between cells of the body, providing a medium for the exchange of substances.