A Firm Is Considering Investing in a New Project with an Upfront

question 11

Multiple Choice

A firm is considering investing in a new project with an upfront cost of $400 million. The project will generate an incremental free cash flow of $50 million in the first year and this cash flow is expected to grow at an annual rate of 3% forever. If the firm's WACC is 12%, what is the value of this project?

• A) $155.6 million
• B) $555.6 million
• C) $583.3 million
• D) $183.3 million

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Definitions:

Level Of Confidence

The probability, often expressed as a percentage, that a parameter lies within a specified interval.

Confidence Interval

A series of values, yielded by sample statistical study, thought to encompass the value of an unrevealed population parameter.

Confidence Intervals

A sequence of values, garnered from samples, anticipated to cover the value of a yet-to-be-discovered population parameter.

Sampling Distribution

The probability distribution of a given statistic based on a random sample.