Use the Following Information to Answer the Question(s) Below

question 69

Multiple Choice

Use the following information to answer the question(s) below.
Wyatt Oil is considering an investment in a new project with an unlevered cost of capital of 11%. Wyatt's marginal corporate tax rate is 35% and its debt cost of capital is 6%. The project has free cash flows of $25 million per year which are expected to decline by 3% per year.
-If Wyatt adjusts its debt once per year to maintain a constant debt-equity ratio of 50%,then the value of this new project is closest to:

• A) $240 million
• B) $320 million
• C) $340 million
• D) $445 million

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Definitions:

Time Value

The notion that money possessed today is more valuable than the same quantity in the future due to its potential to earn income.

Accounting Data

Financial information and records about a company's transactions used for reporting and analysis.

Internal Rate of Return

A financial metric used to evaluate the profitability of potential investments, representing the discount rate at which the net present value of all the cash flows from a project equals zero.

Net Present Value

A method of evaluating the profitability of an investment, which calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.