Hu's Has 25,000 Shares of Common Stock Outstanding with a Beta

question 29

Multiple Choice

Hu's has 25,000 shares of common stock outstanding with a beta of 1.4,a market price of $32 a share,and a dividend yield of 5.7 percent.Dividends increase by 4.2 percent annually.The firm also has $450,000 of debt outstanding that is selling at 102 percent of par that has a yield to maturity of 6.8 percent.The tax rate is 21 percent and all interest is tax deductible.The firm is considering a project that has the same risk level as the firm's current operations,an initial cost of $328,000 and cash inflows of $52,500,$155,000,and $225,000 for Years 1 to 3,respectively.What is the NPV of the project?

• A)$28,515
• B)$31,492
• C)$36,511
• D)$27,006
• E)$30,157

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