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:

Unlimited Liability

A legal situation in which the owners of a business are personally responsible for all the debts and liabilities of the business.

Double Taxation

The imposition of taxes on the same income, asset, or financial transaction at two different levels of government, such as corporate income being taxed first at the corporate level and then at the shareholder level when dividends are paid.

Double Taxation

The imposition of taxes on the same income, asset, or financial transaction at two different levels of government, often seen with corporate earnings taxed at both the corporate level and again as shareholder dividends.