General Motors Has a Weighted Average Cost of Capital of 11%.GM

question 64

Multiple Choice

General Motors has a weighted average cost of capital of 11%.GM is considering investing in a new plant that will save the company $30 million over each of the first two years,and then $25 million each year thereafter.If the investment is $150 million,what is the net present value (NPV) of the project?

• A)$45 million
• B)-$51 million
• C)$-41 million
• D)$86 million

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Definitions:

Average Tax Rate

The ratio of the total amount of taxes paid to the total tax base (taxable income or spending), representing the average tax burden.

Capital Gains

The profit earned from the sale of assets like stocks, bonds, or real estate, which exceeds the purchase price.

Non-Eligible Dividends

Dividends paid from earnings that are not eligible for the enhanced dividend credit in certain jurisdictions, typically leading to higher tax rates for the recipient than eligible dividends.

Cash Flow

The net amount of cash being transferred into and out of a business during a specific period.