Burns and Nuble Is Considering an Investment in a Project

question 29

Multiple Choice

Burns and Nuble is considering an investment in a project which would require an initial outlay of $350,000 and produce expected cash flows in years 1-5 of $95,450 per year.You have determined that the current after-tax cost of the firm's capital (required rate of return) for each source of financing is as follows:
Cost of Long-Term Debt 7%
Cost of Preferred Stock 11%
Cost of Common Stock 15%
Long term debt currently makes up 25% of the capital structure,preferred stock 15%,and common stock 60%.What is the net present value of this project?

• A) -$9,306
• B) $2,149
• C) $5,983
• D) $11,568

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