A Levered Firm Has a Target Capital Structure of 30

question 38

Multiple Choice

A levered firm has a target capital structure of 30 percent debt and 70 percent equity.The aftertax cost of debt is 5.1 percent,the tax rate is 35 percent,and the cost of equity is 13.1 percent.The firm is considering a project that is equally as risky as the overall firm.The project has an initial cash outflow of $1.2 million and annual cash inflows of $516,000 at the end of each year for 3 years.What is the NPV of the project?

• A)$60,174.68
• B)$69,856.82
• C)$67,565.33
• D)$64,001.03
• E)$93,322.15

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Definitions:

Deficits

Shortfalls or deficiencies in a context, such as budget deficits where expenses exceed revenues or in skills where current abilities do not meet a required standard.

Overt Behaviors

Observable actions or reactions of an individual in response to external or internal stimuli.

Consequences

Outcomes or effects that follow an action or decision.

Issue

A significant topic or problem for debate or discussion.